UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

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

                                   FORM 10-QSB

(Mark One)

    (X) Quarterly Report Under Section 13 or 15(d) of the Securities Exchange
            Act of 1934 For the quarterly period ended March 31, 2003

                        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 twelve 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
                                     ---           ---

As of May 2, 2003, the registrant's common shares closed at $17.45 per share and
the aggregate market value of the registrant's common shares held by
non-affiliates of the registrant was approximately $5,671,250. At that date
approximately 325,000 shares of $.01 par value common stock were held by
non-affiliates of the registrant. The shares are listed on the American Stock
Exchange.

<PAGE>
                                TABLE OF CONTENTS



PART I

     ITEM 1     FINANCIAL STATEMENTS                                         3-5

                NOTES TO FINANCIAL STATEMENTS                               6-22

     ITEM 2     MANAGEMENT'S DISCUSSION AND ANALYSIS                       23-28

     ITEM 3     CONTROLS AND PROCEDURES                                       29

PART II

     OTHER INFORMATION                                                     29-31

     SIGNATURES                                                               31

     CERTIFICATION PURSUANT TO THE SARBANES-OXLEY ACT                         32

     CERTIFICATION OF FORM 10-QSB                                          33-34

     EXHIBITS                                                              35-38








                                     PART I
                                     ITEM 1.


                              FINANCIAL STATEMENTS

                                  [Pages 3-5]

                                       2
<PAGE>
                          CAPITAL ALLIANCE INCOME TRUST
                         A REAL ESTATE INVESTMENT TRUST

                                 Balance Sheets
<TABLE>
<CAPTION>
                                                                                            (Unaudited)     (Audited)
                                                                                             March 31,     December 31,
                                                                                               2003            2002
                                                                                               ----            ----
<S>                                                                                       <C>             <C>
ASSETS

Cash and cash equivalents                                                                 $  1,066,176    $    494,443
Restricted cash                                                                                242,754         519,321
Marketable securities                                                                            8,514           8,215
Accounts receivable                                                                            508,347         489,946
Other Assets, net                                                                               67,106           7,453
Due from affiliates                                                                             77,261         129,758
Notes receivable:
   Warehousing facilities to related parties                                                 3,549,442       3,382,940
   Mortgage notes receivable                                                                19,502,755      19,906,391
   Allowance for loan losses                                                                  (330,000)       (310,000)
                                                                                          ------------    ------------
      Net notes receivable                                                                  22,722,197      22,979,331
Real estate owned                                                                                 --              --
Investments in affiliates                                                                    1,054,410       1,080,930
Origination costs (net)                                                                        274,946         264,060
                                                                                          ------------    ------------

Total assets                                                                              $ 26,021,711    $ 25,973,457
                                                                                          ============    ============

LIABILITIES AND STOCKHOLDER'S EQUITY

Liabilities
     Mortgage note holdbacks                                                              $    242,754    $    519,321
     Loans payable                                                                          11,508,049      10,972,350
     Due to affiliate                                                                              667           2,719
     Other liabilities                                                                         234,522         219,011
                                                                                          ------------    ------------
Total liabilities                                                                           11,985,992      11,713,401
                                                                                          ------------    ------------
Stockholders' Equity
    Preferred stock, $.01 par value; 430,000 shares authorized;                                  2,138           2,138
          213,820 shares issued and outstanding at March 31, 2003 and December 31, 2002;
    Additional paid in capital - preferred stock                                             5,669,123       5,669,123
     Less treasury stock: 3,176 preferred shares
          at March 31, 2003 and December 31, 2002, respectively                                (86,944)        (86,944)
    Common stock, $.01 par value; 1,700,000 shares authorized;                                   4,952           4,952
          495,161 shares issued and outstanding at March 31, 2003 and December 31, 2002;
    Additional paid in capital - common stock                                                9,370,895       9,370,895
    Less treasury stock: 71,942 and 71,017 common shares at
    March 31, 2003 and December 31, 2002, respectively                                      (1,205,441)       (962,662)
    Accumulated other comprehensive income                                                      (1,425)         (1,723)
    Retained earnings                                                                          282,421         264,277
                                                                                          ------------    ------------

Total stockholders' equity                                                                  14,035,719      14,260,056
                                                                                          ------------    ------------

Total liabilities and stockholders' equity                                                $ 26,021,711    $ 25,973,457
                                                                                          ============    ============
</TABLE>

                See accompanying notes to financial statements.

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

                            Statements of Operations
                                  (Unaudited)

                                                        Three Months Ended
                                                             March 31,
                                                         2003         2002
                                                         ----         ----
REVENUES
     Interest income                                  $ 692,578    $ 675,611
     Interest income from affiliates                     30,656       59,205
     Equity in gain (loss) of affiliate                 (24,179)       1,052
     Other income                                         1,578        5,610
                                                      ---------    ---------
         Total revenues                                 700,633      741,478
                                                      ---------    ---------

EXPENSES
     Loan servicing fees to related parties             111,114      128,000
     Management fees to related parties                  87,954       65,000
     Interest expense on loans                          107,828      105,500
     Interest expense on loans from related parties         958        6,858
     Provision for loan losses                           20,000       23,000
     Taxes                                                3,000       12,000
     Amortization                                        13,275       11,167
     General and administrative                          62,356       75,021
                                                      ---------    ---------
           Total expenses                               406,485      426,546
                                                      ---------    ---------

INCOME BEFORE GAIN (LOSS) ON REAL
ESTATE OWNED                                            294,148      314,932
                                                      ---------    ---------
     Operating expenses of real estate owned               --         (1,426)
     (Loss) on real estate owned                           --         (6,527)
                                                      ---------    ---------

NET INCOME                                            $ 294,148    $ 306,979
                                                      =========    =========

PREFERRED DIVIDENDS                                   $  80,281    $  88,422
                                                      ---------    ---------

NET INCOME AVAILABLE TO COMMON                        $ 213,867    $ 218,557
                                                      =========    =========

BASIC EARNINGS PER
     COMMON SHARE                                     $    0.50    $    0.53

DILUTED EARNINGS PER
     COMMON SHARE                                     $    0.43    $    0.42

DIVIDENDS PAID PER
     PREFERRED SHARE                                  $    0.38    $    0.42

DIVIDENDS PAID PER
     COMMON SHARE                                     $    0.45    $    0.30

WEIGHTED AVERAGE COMMON
     SHARES - BASIC                                     425,209      410,705

WEIGHTED AVERAGE COMMON
     SHARES - DILUTED                                   493,244      521,132

                See accompanying notes to financial statements.

                                       4
<PAGE>
                          CAPITAL ALLIANCE INCOME TRUST
                         A REAL ESTATE INVESTMENT TRUST

                            Statements of Cash Flows
                                  (Unaudited)
<TABLE>
<CAPTION>
                                                                         Three Months Ended
                                                                               March 31,
                                                                          2003          2002
                                                                          ----          ----
<S>                                                                  <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES
      Net Income                                                     $   294,148    $   306,979
      Adjustments to reconcile net income to cash:
        Provision for loan losses                                         13,275         11,167
        Amortization                                                      20,000         23,000
        Loss on real estate owned                                           --            6,527
        Equity in (gain) loss of affiliate                                24,179         (1,052)
        (Increase) decrease in accounts receivable                       (18,401)       (84,183)
        (Increase) decrease in other assets                              (70,585)       (33,775)
            (adjusted for: amortization and capitalized loan fees)
        Increase (decrease) in due to / due from affiliates               50,445       (197,122)
        Increase (decrease) in other liabilities                          15,511          5,236
                                                                     -----------    -----------
          Net cash provided by operating activities                      328,572         36,777

CASH FLOWS FROM INVESTING ACTIVITIES
      Investment in marketable securities                                   --          (10,436)
      Increase in origination costs                                      (10,886)          --
      (Increase) Decrease in warehousing facilities                     (166,502)       559,727
      Investments in mortgage notes receivable                        (3,022,572)    (3,614,242)
      Repayments of mortgage notes receivable                          3,426,208      2,273,601
                                                                     -----------    -----------
        Net cash provided (used) in investing                            226,248       (791,350)

CASH FLOWS FROM FINANCING ACTIVITIES
      Proceeds from bank loans                                           535,699      1,462,926
      Loan fees paid                                                        --          (19,500)
      Purchase of treasury stock                                        (253,969)       (11,840)
      Sale of treasury stock                                              11,190         65,241
      Preferred dividends paid                                           (80,281)       (88,422)
      Common dividends paid                                             (195,726)      (122,821)
                                                                     -----------    -----------
        Net cash provided by financing activities                         16,913      1,285,584

NET INCREASE IN CASH AND CASH EQUIVALENTS                                571,733        531,011
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                         494,443        441,909
                                                                     -----------    -----------

CASH AND CASH EQUIVALENTS AT END OF PERIOD                           $ 1,066,176    $   972,920
                                                                     ===========    ===========

SUPPLEMENTAL CASHFLOW INFORMATION:
      Cash paid for interest                                         $   106,562    $   112,358
      Cash paid for taxes                                            $     3,996    $       800

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

                See accompanying notes to financial statements.

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

                 As of March 31, 2003 and December 31, 2002 and
               For the three months ended March 31, 2003 and 2002
                                  (Unaudited)

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

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

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

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

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

     Basis of presentation. 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-QSB and do not include all of the information and the footnotes
     required by accounting principles generally accepted in the United States
     of America for complete statements. In the opinion of management, all
     adjustments, consisting only of normal recurring adjustments, necessary for
     a fair presentation of such financial statements, have been included.

     These financial statements should be read in conjunction with the financial
     statements and notes thereto for the year ended December 31, 2002 filed
     pursuant to 15d-2 on Form 10-KSB with the Securities and Exchange
     Commission.

     The unaudited interim financial statements for the three months ended March
     31, 2003 and 2002 represent the financial statements of the Company.

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

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

     Cash and cash equivalents. Cash and cash equivalents include cash and
     liquid investments with an original maturity of three months or less. The
     Company deposits cash in financial institutions

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

                          Notes to Financial Statements
                                   (Unaudited)

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

     insured by the Federal Deposit Insurance Corporation. At times, the Trust's
     account balances may exceed the insured limits.

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

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

     Allowance for losses. Management reviews its loan loss provision
     periodically and the Company maintains an allowance for losses on mortgage
     notes receivable at an amount that management believes is sufficient to
     protect against potential losses inherent in the loan portfolio. The
     Company's actual losses may differ from the estimate. Accounts receivable
     deemed uncollectible are written off. The Company does not accrue interest
     income on impaired loans.

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

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

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

     Impairment policy. Statement of Financial Accounting Standards No. 144,
     "Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS No.
     144), was adopted by the Company effective January 1, 2002. SFAS No. 144,
     which replaces SFAS No. 121, "Accounting for the Impairment of Long-Lived
     Assets and for Long-Lived Assets to be disposed of", institutes one
     accounting model for long-lived assets to be disposed of based on the
     framework established by SFAS No. 144, which requires that long-lived
     assets to be disposed of be measured at the lower of

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

                          Notes to Financial Statements
                                   (Unaudited)

2.   Summary of significant accounting policies and nature of operations
     -------------------------------------------------------------------
     (continued)
     -----------
     carrying amount or fair market value less cost to sell. The adoption of the
     statement did not have a significant impact on the Company's financial
     condition or results of operation.

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

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

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

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

     Based on the Trust's belief that it has operated in a manner so as to allow
     it to be taxed as a REIT since inception, no provision for federal income
     taxes has been made in the financial statements. For the three-month period
     ended March 31, 2003 and 2002, the dividends paid per Preferred Share and
     Common are allocated 100% as ordinary income.

     State taxes. The state of Delaware imposes a tax on the capitalization of
     the Trust. Each year, the Trust also incurs a franchise tax to the state of
     California.

     Stock options. Statement of Financial Accounting Standards No. 148 (SFAS
     No. 148) "Accounting for Stock-Based Compensation - - Transition and
     Disclosure" was issued in December of 2002. This Statement amends Statement
     of Financial Accounting Standards No.123 (SFAS No. 123), "Stock-Based
     Compensation," to provide alternative methods of transition for a voluntary
     change to the fair value based method of accounting for stock-based
     compensation. In addition, the Statement amends the disclosure requirements
     of SFAS No. 123 to require prominent disclosures in both annual and

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

                          Notes to Financial Statements
                                   (Unaudited)

2.   Summary of significant accounting policies and nature of operations
     -------------------------------------------------------------------
     (continued)
     ------------
     interim financial statements about the method used on reported results. The
     alternative methods of transition of SFAS 148 follows Accounting Principles
     Board Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to
     Employees", in accounting for stock options to employees. The disclosure
     provision of SFAS 148 is effective for years ending after December 15,
     2002. The Company follows APB 25 in accounting for stock options. The
     disclosure provision of SFAS 148 is effective for years ending after
     December 15, 2002 and has been incorporated into these financial statements
     and accompanying footnotes (Note 14).

     Revenue recognition. Interest income is recorded on the accrual basis of
     accounting in accordance with the terms of the loans. When the payment of
     principal or interest is 90 or more days past due, management 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. However, if the mortgage's collateral is
     considered insufficient to satisfy the outstanding balance, after estimated
     foreclosure and selling costs, interest is not accrued.

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

     Reclassifications. Certain 2002 amounts may have been reclassified to
     conform to the 2003 presentation. Such reclassifications had no effect on
     reported net income or earnings per share.

     Recent accounting pronouncements. In January 2003, the Financial Accounting
     Standards Board ("FASB") issued Interpretation No. 46 ("FIN 46"),
     "Consolidation of Variable Interest Entities." The objective of this
     interpretation is to provide guidance on how to identify a variable
     interest entity and determine when the assets, liabilities, non-controlling
     interests and results of operation of a variable interest entity need to be
     included in a company's consolidated financial statements. A company that
     holds variable interests in an entity, will need to consolidate the entity
     if the company's interest in the variable interest entity is such that the
     company will absorb a majority of the variable interest entity's expected
     losses and/or receive a majority of the entity's expected residual returns.
     The provisions of this interpretation became effective upon issuance. FIN
     46 may require consolidation of CAFC into the Trust's financial statements
     commencing with the Trust's July 1, 2003 reporting period.

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

     Pursuant to mortgage loan agreements between the Company and its borrowers,
     a portion of the proceeds are held by the Company in segregated accounts to
     be disbursed to borrowers upon completion of improvements on the secured
     property.

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

     Marketable securities consist of equity securities and are accounted for as
     available-for-sale securities. Unrealized gains and losses are excluded
     from earnings and reported in accumulated other comprehensive income.

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

                          Notes to Financial Statements
                                   (Unaudited)

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

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

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

     The Trust entered into a loan purchase agreement on December 12, 1997 with
     CAFC. Under the terms of the agreement, the Trust advances funds to CAFC to
     acquire mortgage loans secured by real estate. The Trust then acquires all
     of CAFC's right, title and interest in such loans. CAFC is obligated to
     reacquire the loans from the Trust at a preset price. As of March 31, 2003
     and December 31, 2002, the Trust advanced to the CAFC $3,549,442 and
     $3,382,940, respectively. The interest rate on this line of credit varies
     with market conditions and is payable monthly. As of March 31, 2003 and
     2002 the applicable interest rate was 6.0% and 7.0%, respectively. During
     the three months ended March 31, 2003 and 2002, the Trust earned interest
     in the amount of $30,656 and $59,205, respectively.

     The Trust entered into a loan purchase agreement on January 1, 1998 with
     Calliance Mortgage Trust, which subsequently merged into the Mortgage
     Division of Calliance Realty Fund, LLC ("CRF") on May 30, 2000. Under the
     terms of the agreement, the Trust advances funds to CRF to acquire mortgage
     loans secured by real estate. The Trust then acquires all of CRF's right,
     title and interest in such loans. CRF is obligated to reacquire the loans
     from the Trust at a preset price. As of March 31, 2003 and December 31,
     2002, CRF owed the Trust $0. Annual interest on this line of credit is
     between 7.0% and 12.0% and is payable monthly. The Trust earned interest in
     the amount of $0 during the three months ended March 31, 2003 and 2002,
     respectively. The Trust also borrows on an unsecured basis from CRF with
     interest payable monthly at an annual rate of between 5.0% and 12.0%. As of
     March 31, 2003 and December 31, 2002, the Trust had repaid all borrowings
     from CRF.

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

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

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

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

                          Notes to Financial Statements
                                   (Unaudited)

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

     A reconciliation of the Trust's mortgage notes receivable follows:

                                     Three months ended    Twelve months ended
                                       March 31, 2003       December 31, 2002
                                       --------------       -----------------

Balance, beginning of period           $ 19,906,391           $ 17,738,923
Additions during period:
    New mortgage loans                    3,022,572             14,195,708
Deductions during period:
    Collections of principal             (3,426,208)           (11,378,857)
    Foreclosures, net of reserve               --                 (540,021)
    Write off of uncollectible loans           --                  (65,000)
    Transfer to CAFC                           --                  (44,362)
                                       ------------           ------------
Balance, end of period                 $ 19,502,755           $ 19,906,391


8.   Allowance for losses
     --------------------

     The Trust measures loan impairment based on the fair value of the related
     collateral since all loans subject to this measurement are collateral
     dependent. Management believes a $330,000 and $310,000 allowance for losses
     are adequate to protect against potential losses inherent in all
     receivables as of March 31, 2003 and December 31, 2002, respectively. The
     Trust's actual losses may differ from the estimate.

     A reconciliation of the Trust's allowance for losses follows:

                                     Three months ended    Twelve months ended
                                       March 31, 2003       December 31, 2002
                                       --------------       -----------------

Balance, beginning of period            $  310,000             $  180,000
Provision for loan loss                     20,000                195,000
Write off of uncollectible loans               ---                (65,000)
                                        ----------             ----------
Balance, end of period                  $  330,000             $  310,000


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

     On January 1, 2002, the Trust owned two properties. During 2002 the Trust
     foreclosed on one property and sold three properties to CAFC for their
     estimated fair market value which resulted in a net loss of $29,527. As of
     March 31, 2003 and December 31, 2002, the Trust did not own any properties.

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

                          Notes to Financial Statements
                                   (Unaudited)


9.   Real estate owned (continued)
     -----------------------------

     A reconciliation of the real estate owned account shows its cash and
     non-cash activities follows:

<TABLE>
<CAPTION>
                                                        Three months ended   Twelve months ended
                                                          March 31, 2003      December 31, 2002
                                                          --------------      -----------------

<S>                                                         <C>                  <C>
Balance, beginning of period                                $     ---            $  234,527
Foreclosed mortgage notes, net of reserve (non-cash)              ---               506,567
Accrued interest capitalized (non-cash)                           ---                33,454
Gain (loss) on sale (non-cash)                                    ---               (29,527)
                                                            ---------            ----------
                                                                  ---               745,021
Less: Proceeds from sale of real estate owned (net of
closing costs of $0 in 2003 and 2002,
respectively)                                                     ---               745,021
                                                            ---------             ---------

Balance, end of period                                      $     ---             $     ---
                                                            =========             =========
</TABLE>


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

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

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

     During the three months ended March 31, 2003 and 2002, the Trust did not
     contribute any mortgage loans to CAFC. The transfer of mortgage notes
     receivable is a non-cash transaction that is not shown on statements of
     cash flows.



                [REMAINDER OF THE PAGE INTENTIONALLY LEFT BLANK]



                                       12
<PAGE>
                          CAPITAL ALLIANCE INCOME TRUST
                         A REAL ESTATE INVESTMENT TRUST

                          Notes to Financial Statements
                                   (Unaudited)


                      CAPITAL ALLIANCE FUNDING CORPORATION
                                 BALANCE SHEETS
                   As of March 31, 2003 and December 31, 2002


                                                        March 31,   December 31,
                                                          2003          2002
                                                          ----          ----

ASSETS
   Cash and cash equivalents                         $   236,432    $   248,008
   Restricted cash                                       700,314        412,624
   Accounts receivable                                   105,032         81,229
   Notes receivable:
       Mortgage notes receivable                       6,775,405      6,092,094
       Allowance for losses                             (240,000)      (225,000)
                                                     -----------    -----------
            Net notes receivable                       6,535,405      5,867,094
   Real estate owned                                   1,724,456      1,676,261
   Investment in affiliate                                 5,000          5,000
   Other assets                                           43,382         33,285
                                                     -----------    -----------
   Total assets                                      $ 9,350,021    $ 8,323,501
                                                     ===========    ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
   Liabilities
       Mortgage note holdbacks                       $   700,314    $   412,624
       Warehousing facilities                          3,170,782      2,460,643
       Warehousing facilities from related parties     3,549,442      3,382,940
       Due to affiliates                                  37,986         12,093
       Mortgage notes payable                            810,528        950,410
       Other liabilities                                  35,427         32,608
                                                     -----------    -----------
   Total liabilities                                   8,304,479      7,251,318
                                                     -----------    -----------

   Stockholders' Equity
      Preferred shares, no par value                        --             --
          2,000 shares authorized, issued and
          outstanding
      Common shares, no par value                           --             --
          1,000 shares authorized, issued and
          outstanding
      Additional paid in capital                       1,990,056      1,990,056
      Accumulated deficit                               (944,514)      (917,873)
                                                     -----------    -----------
   Total stockholders' equity                          1,045,542      1,072,183
                                                     -----------    -----------
   Total liabilities and stockholders' equity        $ 9,350,021    $ 8,323,501
                                                     ===========    ===========

                                       13
<PAGE>
                      CAPITAL ALLIANCE FUNDING CORPORATION
                            STATEMENTS OF OPERATIONS

                          Notes to Financial Statements
                                   (Unaudited)

                      CAPITAL ALLIANCE FUNDING CORPORATION
                            STATEMENTS OF OPERATION

<TABLE>
<CAPTION>
                                                                    Three Months Ended
                                                                         March 31,
                                                                     2003         2002
                                                                     ----         ----
<S>                                                               <C>          <C>
REVENUES
           Interest income                                        $ 140,316    $ 209,444
           Loan origination income                                  177,657       96,730
           Service release premium                                    9,894        1,235
           Other income                                               1,050        2,430
                                                                  ---------    ---------
                      Total revenues                                328,917      308,839

EXPENSES

           Management fees to related party                          13,107        4,958
           Interest expense on warehousing facilities                40,153       27,822
           Interest expense on related party warehouse facility      30,656       59,205
           Loan origination costs                                    51,660       48,707
           Provision for loan losses                                 25,000        1,458
           Wages and salaries                                       132,621      124,227
           Taxes                                                        767        9,055
           General and administrative                                53,670       24,313
                                                                  ---------    ---------
                      Total expenses                                347,634      299,745
                                                                  ---------    ---------

INCOME BEFORE GAIN (LOSS) ON
     REAL ESTATE OWNED                                              (18,717)      10,094
           Operating expenses of real estate owned                   (5,706)      (9,031)
           Gain on sale of real estate owned                           --           --
                                                                  ---------    ---------

NET INCOME (LOSS)                                                 $ (24,423)   $   1,063
                                                                  ---------    ---------
</TABLE>

                                       14
<PAGE>
                      CAPITAL ALLIANCE FUNDING CORPORATION
                            STATEMENTS OF OPERATIONS

                          Notes to Financial Statements
                                   (Unaudited)

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

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

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

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

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

     Accounts receivable consists primarily of accrued interest on mortgage
     notes receivable and amounts due from borrowers for items such as property
     taxes, insurance, and interest on a first deed mortgage that were paid by
     CAFC on behalf of the property securing the mortgage notes.

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

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

     A reconciliation of the mortgage notes receivable follows:

                                     Three months ended      Twelve months ended
                                       March 31, 2003         December 31, 2002
                                       --------------         -----------------

Balance, beginning of period           $  6,092,094              $  8,631,751
Additions during period:
    Originations                          5,242,950                16,436,099
    Transfers from Trust                       --                      44,362
Deductions during period:
    Collections of principal                (11,092)               (2,572,728)
    Sales                                (4,548,547)              (16,098,320)
    Foreclosures, net of reserve               --                    (271,499)
    Write off of uncollectible loans           --                     (77,571)
                                        ------------             ------------
Balance, end of period                 $  6,775,405              $  6,092,094
                                       ============              ============


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

                                       15
<PAGE>
                      CAPITAL ALLIANCE FUNDING CORPORATION
                            STATEMENTS OF OPERATIONS

                          Notes to Financial Statements
                                   (Unaudited)

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

     Loans designated for sale to a third party are pre-approved for purchase by
     the third party, before the loan is acquired by CAFC. Sales to third
     parties are usually greater than CAFC's total acquisition cost.

     Allowance for losses
     --------------------

     CAFC measures loan impairment based on the fair value of the related
     collateral since all loans subject to this measurement are collateral
     dependent. Management believes a $240,000 and $225,000 allowance for losses
     is adequate to protect against potential losses inherent in all receivables
     as of March 31, 2003 and December 31, 2002, respectively. CAFC's actual
     losses may differ from the estimate.

     A reconciliation of the allowance for losses follows:

                                       Three months ended    Twelve months ended
                                         March 31, 2003       December 31, 2002
                                         --------------       -----------------

Balance, beginning of period              $ 225,000               $ 118,000
Provision for loan loss                      25,000                 192,576
Write off of uncollectible loans
    and write-down of real estate owned     (10,000)                (85,576)
                                          ---------               ---------
Balance, end of period                    $ 240,000               $ 225,000
                                          =========               =========


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

     As of January 1, 2002 CAFC held one property with a value of $567,000.
     During 2002, CAFC sold two properties for a gain of $21,317, two properties
     were acquired by foreclosure and three properties were purchased from the
     Trust for $1,648,760. Net proceeds from the sales were $824,310. As of
     December 31, 2002, CAFC held four properties with a value of $1,676,261.

     A reconciliation of real estate owned follows:

<TABLE>
<CAPTION>
                                                    Three months ended     Twelve months ended
                                                      March 31, 2003        December 31, 2002
                                                      --------------        -----------------

<S>                                                    <C>                     <C>
Balance, beginning of period                           $ 1,676,261             $   567,000
Properties purchased                                          --                 1,648,760
Foreclosed mortgage notes, net of reserve (non-cash)          --                   271,499
Capital costs of real estate owned                          58,195                    --
Real estate sold                                              --                  (802,993)
Property written down                                      (10,000)                 (8,005)
                                                       -----------             -----------
Balance, end of period                                 $ 1,724,456             $ 1,676,261
                                                       ===========             ===========
</TABLE>

                                       16
<PAGE>
                      CAPITAL ALLIANCE FUNDING CORPORATION
                            STATEMENTS OF OPERATIONS

                          Notes to Financial Statements
                                   (Unaudited)

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

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

     As of March 31, 2003 and December 31, 2002, CAFC had borrowed $3,549,442
     and $3,382,940, respectively, under a warehouse line of credit with the
     Trust. The borrowings are secured by pledged mortgage loans as collateral.
     Interest on this warehouse line of credit is adjusted monthly depending on
     market rates. As of March 31, 2003 and December 31, 2002, the interest rate
     was 6.0%. For the three month period ended March 31, 2003 and 2002, CAFC's
     interest expense totaled $30,656 and $59,205, respectively, of which
     $18,052 and $20,849 was outstanding as of March 31, 2003 and 2002,
     respectively. The facility is cancelable by either party upon 30 days
     written notice.

     As of March 31, 2003, CAFC had borrowed $2,956,731 under a $5,000,000
     funding agreement. The agreement provides a 100% advance rate on the notes
     outstanding balance at an interest rate of Prime plus 1.00% with a floor of
     6.00%. As of March 31, 2003 and December 31, 2002, the Prime rate was
     4.25%. Interest is payable monthly with $5,783 accrued and payable as of
     March 31, 2003. The facility is cancelable by either party upon 30 days
     written notice.

     As of March 31, 2003, CAFC had borrowed $214,051 from a mortgage secured
     credit facility. The facility provides a 100% advance rate on the notes
     outstanding balance at an interest rate of 10.75%. Interest is payable
     monthly with accrued interest of $1,984 as of March 31, 2003. As the
     mortgage notes outstanding balance is reduced, CAFC's borrowings are
     repaid. The Trust has guaranteed the repayment of both principal and
     interest. The facility matures October 2003.

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

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

     The Manager earns an administration fee equal to 25 basis points on home
     loans funded for the benefit of CAFC as defined in the First Amended
     Residential Mortgage Loan Services Agreement. As of March 31, 2003 and 2002
     CAFC has expensed $13,107 and $4,958, respectively.

     CAFC received an advance of $3,549,442 and $3,382,940 under a warehouse
     line of credit from the Trust, as of March 31, 2003 and December 31, 2002,
     respectively. The Trust charges a variable interest rate on this warehouse
     line of credit determined by current market rates. The rate charged to CAFC
     on the line of credit as of March 31, 2003 and December 31, 2002 was 6.0%.
     CAFC expensed interest of $30,656 and $59,205 as of March 31, 2003 and
     2002, respectively. The facility is cancelable by either party upon 30 days
     written notice.

     On occasion, CAFC and its affiliates had related party receivables and
     payables arising from ordinary business transactions. As of March 31, 2003
     and December 31, 2002, CAFC had a payable of $4,349 and $12,093,
     respectively, to the Manager. This account is shown on the balance sheet as
     Due to affiliates. No interest is charged on these accounts.

     During the first three months of 2003 CAFC sold $3,022,572 in loans to the
     Trust, at par value.

                                       17
<PAGE>
                      CAPITAL ALLIANCE FUNDING CORPORATION
                            STATEMENTS OF OPERATIONS

                          Notes to Financial Statements
                                   (Unaudited)

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

     As of March 31, 2003 and December 31, 2002, the Trust had borrowed
     $7,877,256 and $6,999,102, respectively, under a line of credit term
     facility, with specific mortgage notes receivable pledged as collateral
     against the advances. During 2002, the Trust secured a 21-month extension
     of the maturity date of this existing $7,000,000 term credit facility
     through June 30, 2004. As part of the borrowing, the lender also agreed to
     provide the Trust with up to an additional $3,000,000 credit facility to
     allow the Trust to "bulge" its aggregate borrowings to $10,000,000 during
     the facility's term. The annual interest rate is the preceding 30-day
     average of 1-month LIBOR (London Interbank Offered Rate for U.S. dollar
     deposits 30-day average at March 31, 2003 and December 31, 2002 was 1.31%
     and 1.31%, respectively) plus 2.00% and is payable monthly.

     As of March 31, 2003 and December 31, 2002, the Trust had borrowed
     $3,500,000 and $3,840,000, respectively, under a second warehouse line of
     credit. The Trust receives advances under the agreement up to a maximum of
     $4,000,000, with specific mortgage notes receivable pledged as collateral
     against the advances. Annual interest is the applicable prime rate (4.25%
     as of March 31, 2003 and December 31, 2002) plus 0.50% and is payable
     monthly. The facility matures October 31, 2003.

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

     The Trust finances a portion of its treasury stock repurchases by borrowing
     on margin from an investment bank. The amount borrowed on margin accrues
     fees at the broker call rate (3.25% as of March 31, 2003 and December 31,
     2002) plus 1.50%. Margin debt is callable at the discretion of the
     investment bank. As of March 31, 2003 and December 31, 2002, the Trust owed
     $130,793 and $133,248, respectively, in margin debt.

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

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

     The Manager receives a management fee equal to one-twelfth (1/12) of 1%
     annually of the book value of mortgages, mortgage-related investments and
     real property ("Gross Mortgage Assets") of the Trust plus one-twelfth
     (1/12) of one-half percent (1/2%) of the book value of the non-mortgage
     assets of the Trust computed at the end of each month. The management fee
     also includes reimbursement for the direct costs of overseeing the
     administration and disposition of real estate owned by the Trust and the
     Company. The management fee paid by the Trust to the Manager was $61,000
     and $58,017, for the three-month period ended March 31, 2003 and 2002,
     respectively.

                                       18
<PAGE>
                      CAPITAL ALLIANCE FUNDING CORPORATION
                            STATEMENTS OF OPERATIONS

                          Notes to Financial Statements
                                   (Unaudited)

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

     The Manager also earns a REO management fee for managing and servicing the
     properties that the Company has obtained through foreclosure of mortgage
     notes held. The fee for these services is $500 per month for each property.
     The Trust paid the Manager $6,000 and $4,500 in REO management fees for the
     three-month period ended March 31, 2003 and 2002, respectively. Within the
     financial statements, REO management fee are included in the Management
     fees to related parties.

     The Manager's incentive compensation for each fiscal quarter, equals 25% of
     the net income of the Trust in excess of an annualized return on common
     equity for such quarter equal to the ten year U.S. Treasury Rate plus
     2.00%, provided that the payment of such incentive compensation does not
     reduce the Trust's annualized return on common equity for such quarter to
     less than the ten year U.S. Treasury Rate after the preferred dividend has
     been paid. The incentive compensation for the three-month period ended
     March 31, 2003 and 2002 was $20,954 and $2,483, respectively. Within the
     financial statements, incentive compensation awards are included in the
     Management fees to related parties.

     The Manager receives a loan origination and servicing fee equal to
     one-twelfth (1/12) of 2% annually of the Gross Mortgage Assets of the Trust
     computed at the end of each month. During 2003 the Trust capitalized 47.5%
     of this fee as loan origination costs and amortized them over the average
     life of the portfolio. The remaining 52.5% of the fee is expensed as the
     portion attributed for servicing. As of December 31, 2002 the Trust
     capitalized 47.5% of this fee as origination costs and amortized them over
     the average life of the portfolio. The remaining 52.5% of the fee was
     expensed as the portion attributed for servicing. For the three-month
     period ended March 31, 2003 and 2002, the Trust paid loan origination and
     servicing fees of $111,114 and $128,000, respectively.

     On occasion, the Trust and its affiliates had related receivables and
     payables arising from ordinary business transactions. As of March 31, 2003,
     the Trust had a receivable of $15,584 from CAFC, a receivable of $61,677
     from the Manager and a payable to CRF of $667. As of March 31, 2002, the
     Trust had a receivable of $20,849 from CAFC, a receivable of $52,200 from
     the Manager and a payable of $2,911 to Sierra Capital Companies. No
     interest is charged on these inter-company accounts.

     As described in Note 6, as of March 31, 2003 and December 31, 2002, the
     Trust advanced to the CAFC $3,549,442 and $3,382,940, respectively. The
     interest rate on this line of credit varies with market conditions and is
     payable monthly. As of March 31, 2003 and 2002 the applicable interest rate
     was 6.0% and 7.0%, respectively. During the three months ended March 31,
     2003 and 2002, the Trust earned interest in the amount of $30,656 and
     $59,205, respectively, of which $18,052 and $20,849 was outstanding as of
     March 31, 2003 and 2002, respectively.

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

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

                                       19
<PAGE>
                      CAPITAL ALLIANCE FUNDING CORPORATION
                            STATEMENTS OF OPERATIONS

                          Notes to Financial Statements
                                   (Unaudited)

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

     less than quarterly basis) or (c) the rate set by the Board of Directors.
     The preferred dividend preference is non-cumulative.

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

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

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

     The Trust has the power to redeem or prohibit the transfer of a sufficient
     number of Common and/or Preferred Shares or the exercise of warrants and/or
     options and to prohibit the transfer of shares to persons that would result
     in a violation of the Trust's shareholding requirements. The Bylaws provide
     that only with the explicit approval of the Trust's Board of Directors may
     a shareholder own more than 9.8% of the total outstanding shares.

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

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

                                       20
<PAGE>
                      CAPITAL ALLIANCE FUNDING CORPORATION
                            STATEMENTS OF OPERATIONS

                          Notes to Financial Statements
                                   (Unaudited)

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

     The activity in the Plan for the three months ended March 31, 2003 and the
     twelve months ended December 31, 2002 follows:

                                                      Weighted average
                                         Options       exercise price
                                         -------       --------------

Outstanding at January 1, 2002           241,500        $   10.30
               Granted                        --               --
               Exercised                 (20,949)            9.55
               Forfeited                      --               --
                                         -------        ---------
Outstanding at December 31, 2002         220,551        $   10.37
               Granted                        --               --
               Exercised                  29,801             9.07
                                         -------        ---------
               Forfeited                      --               --
Outstanding at March 31, 2003            190,750        $   10.72
                                         =======        =========
Outstanding options exercisable as of
               January 1, 2002           241,500        $   10.30
               December 31, 2002         220,551            10.37
               March 31, 2003            190,750            10.72

     As of January 1, 2002, all the Plan's stock options have been granted and
     the unexercised stock options are 100% vested. Therefore, the
     weighted-average fair value of all options granted during 2002 and 2003 is
     $0.00 per share.

     The following table summarizes information with respect to stock options
     outstanding at March 31, 2003:

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



   $9.00 - $9.06             124,850           7.34              $  9.04
   $13.50                     65,900           6.00                13.50
                             -------           ----              -------
                             190,750           6.88              $ 10.72
                             =======           ====              =======

                                       21
<PAGE>
                      CAPITAL ALLIANCE FUNDING CORPORATION
                            STATEMENTS OF OPERATIONS

                          Notes to Financial Statements
                                   (Unaudited)

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

     The Trust accounts for stock options under APB No. 25. Since the exercise
     price of each option granted has been equal to or higher than the closing
     market price of the Company's Common Shares at the date of grant, no
     expense is recognized. The pro forma results of reporting the Company's
     stock option grants using the fair value method consistent with SFAS No.
     123, is presented below for the three-month period ended March 31, 2003 and
     2002:

                                                      2003          2002
                                                      ----          ----

Net income available to common stock             $   213,867   $   218,557
Less: Stock based expense
     using the fair value method                         ---           ---
                                                 -----------   -----------
Pro forma net income available to common stock   $   213,867   $   218,557
                                                 ===========   ===========

Net income per common share:
Basic:
     As reported                                 $      0.50   $      0.53
     Pro forma                                   $      0.50   $      0.53
Diluted:
     As reported                                 $      0.43   $      0.42
     Pro forma                                   $      0.43   $      0.42

     Since no options were granted or vested during 2002 or 2003, the reported
     operating results are identical to the pro forma amounts.

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

     The following table represents a reconciliation of the numerators and
     denominators of the basic and diluted earnings per common share for the
     three-month period ended March 31, 2003 and 2002:

                                                        2003         2002
                                                        ----         ----
Numerator:
Net income                                           $ 294,148    $ 306,979

Preferred dividends attributable to income             (80,281)     (88,422)
                                                     ---------    ---------
Numerator for basic and diluted Earnings per share
    income available to common stockholders          $ 213,867    $ 218,557
                                                     =========    =========
Denominator:
    Basic weighted average shares                      425,209      410,705
    Dilutive effect of options                          68,035      110,427
                                                     ---------    ---------
    Diluted weighted average shares                    493,244      521,132
                                                     =========    =========
Basic earnings per common share                      $    0.50    $    0.53
                                                     =========    =========
Diluted earnings per common share                    $    0.43    $    0.42
                                                     =========    =========

                                       22
<PAGE>
                                     PART I
                                     ITEM 2.

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OR
                                PLAN OF OPERATION

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.

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

Management's discussion and analysis of the results of operations for the three
months ended March 31, 2003 and 2002 follows:

CRITICAL ACCOUNTING POLICIES

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

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

Allowance for losses. A provision for losses in based on management's evaluation
of an amount that is adequate to absorb losses inherent in the existing loan
portfolio. The evaluation, which includes a review of all loans on which full
collection may not be reasonable assumed, considers among other matters, general
economic conditions, the fair market value or the estimated net realizable value
of the underlying collateral, past loan loss experience, trends in loan
delinquency and other factors that warrant recognition in providing for an
adequate loan loss allowance to absorb inherent losses. However, the recovery of
all loan balances is susceptible to future market forces beyond the Company's
control.

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

Interest recognition. The Company accrues interest income as it is earned. Loans
may be placed on a nonaccrual status when any portion of the principal or
interest is three scheduled payments past due or earlier when concern exists as

                                       23
<PAGE>
to the ultimate collectibility of principal or interest. Nonaccrual status loans
are returned to an accrual status when principal and interest become current and
are anticipated to be fully collectible.

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

Equity method of accounting. The Trust's 99% economic interest in CAFC is
presented in the Trust's financial statements according to the equity method of
accounting. This presentation requires the Trust to report the CAFC interest as
an investment. Included in the footnotes to the Trust's financial statements are
CAFC's Balance Sheet as of March 31, 2003 and December 31, 2002 and the
Statement of Operations for the three months ended March 31, 2003 and 2002. If
required, consolidation of CAFC's financial information into the Trust may
materially change the Trust's financial statement balances, but would not affect
the Trust's net income or the earnings per common share calculations. FASB
Interpretation No. 46 may require consolidation commencing with the Trust's July
1, 2003 reporting period.

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

OVERVIEW

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

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

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

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

                                       24
<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 collateral for a
home equity loan, processing such information and underwriting and funding the
mortgage loan. Mortgage loan servicing consists of collecting payments from
borrowers, accounting for interest payments, holding borrowed proceeds in escrow
until fulfillment of mortgage loan requirements, contacting delinquent
borrowers, foreclosing in the event of unremedied defaults and performing other
administrative duties. Mortgage loan origination and loan servicing are provided
to the Trust by CAAI, its Manager.

Commitments and Contingencies. As of March 31, 2003, the Trust's loan portfolio
included 99 loans totaling $19,502,755 of which 17 loans totaling $2,903,807
representing 15% of the loan portfolio were delinquent over two months. Three of
these delinquent loans totaling $586,262 were paid down and six of these
delinquent loans, totaling $790,810 were brought current by May 1, 2003. After
adjusting the March 31, 2003 delinquent balances for these payments, the
delinquencies in excess of two months are eight loans totaling $1,536,735 or 8%
of the loan portfolio. In assessing the collectibility of these delinquent
mortgage loans, management has established a loan loss reserve of $330,000, if
it is necessary to foreclose upon the mortgage loans.

As of March 31, 2002, the Trust's loan portfolio included 111 loans totaling
$19,079,564 of which 14 loans totaling $2,496,361 representing 13% of the loan
portfolio were delinquent over two months. Four of these delinquent loans
totaling $624,505 were paid down and three delinquent loans totaling $512,150
were brought current by May 1, 2002. After adjusting the March 31, 2002
delinquent balances for these payments, the delinquencies in excess of two
months are seven loans totaling $1,359,700 or 7% of the loan portfolio. In
assessing the collectibility of these delinquent mortgage loans, management has
established a loan loss reserve of $203,000, if it is necessary to foreclose
upon the mortgage loans.

The Trust generally issues loan commitments only on a conditional basis and
generally funds such loans promptly upon removal of any conditions. Accordingly,
the Trust did not have any commitments to fund loans as of March 31, 2003 and
March 31, 2002.

<TABLE>
<CAPTION>
        Maximum Other
 Commercial Commitments (a)    Total Amounts
    as of March 31, 2003         Committed                 Amount of Commitment Expiration Per Period
---------------------------    -------------     -------------------------------------------------------------
                                                  Less than       1 - 3 years          4 - 5           After 5
                                                   1 year                              years            years

<S>                             <C>              <C>              <C>                    <C>              <C>
Lines of Credit (b)             $14,130,793      $4,130,793       $10,000,000            0                0
Standby Repurchase                  (c)               0                0                 0                0
Obligations
Guarantees (d)                      214,051        214,051             0                 0                0
Total Commercial Commitments    $14,344,844      $4,344,844       $10,000,000            0                0
</TABLE>

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

(b)  Maximum potential liability. Actual amounts outstanding as of March 31,
     2003 due in less than 1 year was $3,630,793 and due in 1-3 years was
     $7,877,256.

                                       25
<PAGE>
(c)  The Company's mortgage conduit business has an unquantified ongoing
     liability with respect to normal warranties and representations which
     includes fraud in the origination process or early default on loans sold
     into the secondary mortgage market.

(d)  The Trust's guarantee of CAFC's borrowings.

RESULTS OF OPERATIONS

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

Three months ended March 31, 2003 and 2002. Revenues for the first quarter
decreased to $700,633 as compared to $741,478 for the same period in the prior
year. The decrease in revenue, during the first three months of 2003 was due to
lower interest income earned from CAFC of $28,600 and a reduction in the Equity
in gain/loss from CAFC of $25,231. CAIT's larger portfolio provided additional
revenue of $16,967.

Expenses for the first quarter 2003 decreased to $406,485 as compared to
$426,546 for the same period in the prior year. The decreased expenses during
the first three months of 2003 were primarily due to reduced taxes of $9,000 and
decreased general and administrative costs of $12,665.

INFLATION

The financial statements of the Trust, prepared in accordance with accounting
principles generally accepted in the United States of America, report the
Trust's financial position and operating results in terms of historical dollars
and does not consider the impact of inflation. Inflation affects the Trust's
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

As of March 31, 2003, the Trust has lines of credit of $10,000,000 and
$4,000,000 with two different lenders. Management believes that the cash flow
from the payment of mortgage notes receivable, existing bank loan facilities,
and additional lines of credit anticipated to be acquired during 2003 will be
sufficient to meet the liquidity needs of the Trust's businesses for the next
twelve months.

Three months ended March 31, 2003 and 2002. As of January 1, 2003 and 2002, the
Trust had $494,443 and $441,909 of cash and cash equivalents, respectively.
During each three month period, cash and cash equivalents increased by $571,733
and $531,011, respectively. After taking into effect the various transactions
discussed below, cash and cash equivalents at March 31, 2003 and 2002 were
$1,066,176 and $972,920.

The following summarizes the changes in net cash provided by operating
activities, net cash used for investing activities, and net cash provided by
financing activities.

Net cash provided by operating activities during the three months ended March
31, 2003 and 2002 was $328,572 and $36,777, respectively. During the first three
months of 2003, Net Income provided $294,148, a net increase in due from
affiliates provided $50,445 and an increase in accounts receivable used $18,401.
During 2002, Net Income provided $306,979, an increase in accounts receivable
used $84,183 and a net decrease in due to affiliates used $197,122.

                                       26
<PAGE>
Net cash provided by (used in) investing activities for the three months ended
March 31, 2003 and 2002 was $226,248 and ($791,350), respectively. During the
first three months of 2003 a net reduction in mortgage notes receivable provided
$403,636 and an increase in warehousing facilities to related parties used
$166,502. The net use of cash from investing activities in 2002 is primarily due
to increased mortgage notes receivable which used $1,340,641 and partially
offset by reduced affiliate warehouse borrowing which provided $559,727.

Net cash provided by financing activities during the three months ended March
31, 2003 and 2002 was $16,913 and $1,285,085, respectively. During the first
three months of 2003 increased borrowings provided cash of $535,699, while
dividends and treasury stock purchases reduced cash by $276,007 and $253,969,
respectively. During 2002 cash was provided by increased borrowings of
$1,462,926 and reduced by $211,243 for the payment of dividends and by $11,840
for the purchase of treasury stock.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

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

Interest risk. Interest rate risk is highly sensitive to many factors, including
governmental, monetary and tax policies, domestic and international economic and
political considerations and other factors beyond the control of the Trust.
Changes in the general level of the U.S. Treasury yield curve can have
significant effects on the market value of the Trust's portfolio. The majority
of the Trust's assets are fixed-rate loans with a spread to U.S. Treasuries. The
Trust's loans are valued on the March 31, 2003 balance sheet of the lower of
cost or market.

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

On account of the relatively short adjusted weighted average maturity of the
Trust's portfolio (30 months), a variety of financial instruments available to
limit the effects of interest rate fluctuations on its operations have not been
utilized. The use of these types of derivatives (such as interest rate swaps,
caps, floors and other interest rate exchange contracts) to hedge
interest-earnings assets and/or interest-bearing liabilities carry risks,
including the risk that the net losses on a hedge position may exceed the amount
invested in such instruments.

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

                                       27
<PAGE>
All loans are subject to a certain probability of default and foreclosure. An
increase in default rates will reduce the book value of the Trust's assets and
the Trust's earnings and cash flow available to fund operations and pay
dividends.

The Trust manages credit risk through the underwriting process, limiting loans
at the time of funding to 75% of the collateral's appraised value, establishing
loss assumptions and carefully monitoring loan performance. Nevertheless, the
Trust assumes that a certain portion of its loans will default and adjusts the
allowance for loan losses based on that assumption. For purposes of
illustration, a doubling of the assumed losses in the Trust's portfolio would
reduce first quarter 2003 GAAP income available to common shareholders by
$330,000 or 113%.

Asset and liability management. Asset and liability management is concerned with
the timing and magnitude of the maturity of assets and liabilities. In general,
management's strategy is to approximately match the term of the Trust's
liabilities to the portfolio's adjusted weighted average maturity (30 months).

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

                            One Year - Historical
                    Interest Rate Adjustment in Basis Points
--------------------------------------------------------------------------------
  Borrowings         <200 bp>        <100 bp>          100 bp          200 bp
----------------- --------------- ---------------- --------------- -------------
  Net Income           15%              8%              <9%>           <20%>
     1Q-03
----------------- --------------- ---------------- --------------- -------------
  Net Income           12%              6%              <7%>           <14%>
     4Q-02
----------------- --------------- ---------------- --------------- -------------
  Net Income            8%              4%              <4%>            <8%>
     3Q-02
----------------- --------------- ---------------- --------------- -------------
  Net Income            8%              4%              <4%>            <8%>
     2Q-02
----------------- --------------- ---------------- --------------- -------------
  Net Income            8%              4%              <4%>            <8%>
     1Q-02
----------------- --------------- ---------------- --------------- -------------


                [REMAINDER OF THE PAGE INTENTIONALLY LEFT BLANK]


                                       28
<PAGE>
                                     PART I
                                     ITEM 3.

                             CONTROLS AND PROCEDURES

(A) Evaluation of Disclosure Controls and Procedures. The principal executive
and financial officers of the Trust have reviewed and evaluated the
effectiveness of the design and operation of the Trust's disclosure controls and
procedures within the 90 days preceding the date of this report and have
determined (i) that such controls and procedures are operating properly and
adequately to ensure that material information relating to the Trust's
operations and required to be disclosed in this report is being made known to
them by the responsible persons involved in the Trust's operations; and (ii)
that there are neither significant deficiencies in the design and operation of
such controls and procedures that could affect the Trust's ability to record,
process, summarize and report financial data nor is there any fraud that
involves management or other employees who have a significant role in the
Trust's internal controls. The results of such review and evaluation have been
disclosed to the Trust's auditors and the Trust's audit committee.

(B) Changes in Internal Controls. There have been no significant changes in the
Trust's internal controls or in other factors that could significantly affect
those controls subsequent to the date of their evaluation. Accordingly, no
corrective actions with regard to such controls or procedures have been
required.

                                     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 first quarterly period ending March 31, 2003, the Trust
     purchased 15,300 common shares. Additionally, options for 29,801 common
     shares were exercised.

ITEM 3  DEFAULTS UPON SENIOR SECURITIES

     Not applicable.

ITEM 4  SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

     No matters were submitted to a vote of security holders during the
     quarterly period ended March 31, 2003.

ITEM 5  OTHER INFORMATION

     Press Release, Exhibit "A" attached hereto and incorporated herein,
     announcing 1st Quarter 2003 Common Share Dividend.

     Press Release, Exhibit "B" attached hereto and incorporated herein,
     announcing Extension of Major Credit Facility.

     Press Release, Exhibit "C" attached hereto and incorporated herein,
     announcing 2nd Quarter 2003 Common Share Dividend.

                                       29
<PAGE>
       Press Release, Exhibit "D" attached hereto and incorporated herein, dated
       May 15, 2003 announcing 1st Quarter 2003 Net Income.

ITEM 6   EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibits
         --------

         Exhibit No.
         3.1    Charter Certificate of Incorporation and Amendment No. 1(1)
         3.2    Bylaws of the Registrant(1)
         3.3    Certificate of Amendment of Certificate of Incorporation(6)
         4.1    Form of Stock Certificate of Common Shares of the Registrant(2)
         10.1   Form of Management Agreement between the Registrant and Capital
                Alliance Advisors, Inc.(1)
         10.2   Form of Indemnity Agreement between the Registrant and its
                Directors and Officers(1)
         10.3   Form of Loan Origination and Loan Servicing Agreement between
                the Registrant and Capital Alliance Advisors, Inc.(1)
         23.4   Consent of Landels Ripley & Diamond, LLP(5)
         23.5   Consent of Novogradac & Company LLP(5)
         24.1   Power of Attorney of Thomas B. Swartz(1)
         24.2   Power of Attorney of Dennis R. Konczal(1)
         24.4   Power of Attorney of Stanley C. Brooks(1)
         24.5   Power of Attorney of Harvey Blomberg(1)
         24.7   Power of Attorney of Richard J. Wrensen(7)
         24.8   Power of Attorney of Donald R. Looper(8)

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

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

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

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

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

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

                                       30
<PAGE>
(8)      This exhibit was previously contained in From 10-KSB for the period
         ending December 31, 2002 filed with the Commission on April 15, 2003,
         and is incorporated by reference herein.

(b)      Reports on Form 8-K.
         --------------------

         No reports on Form 8-K were filed for the period ending March 31, 2003

                                   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 hereunto duly authorized.


                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A Real Estate Investment Trust


Dated:   May 15, 2003               By:  /s/ Thomas B. Swartz
                                         --------------------
                                         Thomas B. Swartz,
                                         Chairman and Chief Executive Officer


Dated:   May 15, 2003               By:  /s/ Richard J. Wrensen
                                         ----------------------
                                         Richard J. Wrensen,
                                         Chief Financial Officer
                                         Executive Vice President


                                       31
<PAGE>
                                  CERTIFICATION


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

In connection with the Quarterly Report of Capital Alliance Income Trust Ltd.
(the "Company") on Form 10-QSB for the period ending March 31, 2003 as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
I, Thomas B. Swartz, Chief Executive Officer of the Company, Richard J. Wrensen,
Chief Financial Officer of the Company, and I, Dennis R, Konczal, President and
Chief Operating Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350,
as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:

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

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



Date:  May 15, 2003


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



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



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


                                       32
<PAGE>
                                  CERTIFICATION
               OF FORM 10Q OF CAPITAL ALLIANCE INCOME TRUST LTD.,
                     A REAL ESTATE INVESTMENT TRUST FOR THE
                          PERIOD ENDING MARCH 31, 2003


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

The undersigned each individually certifies that:

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

2.   Based on my knowledge, this quarterly report does not contain any untrue
     statement of a material fact or omit to state a material fact necessary to
     make the statements made, in light of the circumstances under which such
     statements were made, not misleading with respect to the period covered by
     this report;

3.   Based on my knowledge, the financial statements, and other financial
     information included in this quarterly report, fairly present in all
     material respects the financial condition, results of operations and cash
     flow of the registrant as of, and for, the periods presented in this
     quarterly report;

4.   The registrant's other certifying officers are responsible for establishing
     and maintaining disclosure controls and procedures (as defined in Exchange
     Act Rules 13a-14 and 15d-14) for the registrant and we have:

o    designed such disclosure controls and procedures to ensure that material
     information relating to the registrant, is made known to us by others
     within those entities, particularly during the period in which this report
     in being prepared;

o    evaluated the effectiveness of the registrant's disclosure controls and
     procedures as of a date within 90 days prior to the filing date of this
     quarterly report (the "Evaluation Date); and

o    presented in this report our conclusions about the effectiveness of the
     disclosure controls and procedures based on our evaluation as of the
     Evaluation Date;

5.   The registrant's other certifying officers have disclosed, based on our
     most recent evaluation, to the registrant's auditors and the audit
     committee of registrant's board of directors:

o    all significant deficiencies in the design or operation of internal
     controls which could adversely affect the registrant's ability to record,
     process, summarize and report financial data and have identified for the
     registrant's auditors any material weaknesses in internal controls; and

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

6.   The registrant's other certifying officers have indicated in this quarterly
     report, whether there were significant changes in internal controls or in
     other factors that could significantly affect internal controls subsequent
     to the date of our most recent evaluation, including any corrective actions
     with regard to significant deficiencies and material weaknesses.

                            [SIGNATURES ON NEXT PAGE]

                                       33
<PAGE>
Date: May 15, 2003


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



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



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

                                       34
<PAGE>
                                   EXHIBIT "A"

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

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

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

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

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

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

                                       35
<PAGE>
                                   EXHIBIT "B"

                       CAPITAL ALLIANCE INCOME TRUST LTD.
                             ANNOUNCES EXTENSION OF
                          A MAJOR TERM CREDIT FACILITY

SAN FRANCISCO--(BUSINESS WIRE)--March 14, 2003--Capital Alliance Income Trust
Ltd. ("CAIT") (AMEX: CAA-news), a specialty, non-conforming residential mortgage
finance company, announced that it has negotiated a 21-month extension of the
maturity date of its existing $7,000,000 term credit facility with Washington
Mutual Bank, FA ("Washington Mutual") through June 30, 2004. As part of the
negotiations, Washington Mutual also agreed to provide CAIT with up to an
additional $3,000,000 credit facility to allow CAIT to "bulge" its aggregate
borrowing from WAMU up to $10,000,000 during the facility's term.

Thomas B. Swartz, Chairman and CEO of CAIT, stated that "the extension" of the
Washington Mutual term credit facility will increase CAIT's liquidity and
enhance its ability to more fully take advantage of favorable interest rate
spreads and will enable CAIT to increase its niche bridge financing business and
expand its core portfolio mortgage lending business which has been consistently
profitable.

Richard J. Wrensen, Executive Vice-President and Chief Financial Officer of CAIT
again reiterated his observation in 2002 that CAIT not only will continue to
discuss increased credit commitments with its existing lenders and to seek
additional borrowing facilities and banking relationships, but also will explore
avenues to increase its capital base. He observed that "CAIT continues to
maintain a conservative balance sheet since CAIT and its subsidiary's borrowings
are only 1.5 times their capital base. Most mortgage REIT's borrow six to eight
or more times their capital. All loans with a combined loan-to-value ratio of
more that 75% of the collateral's appraised value at the time of funding are
pre-sold into the secondary market. Only loans with a combined loan-to-value
ratio of less than 75% are retained in CAIT's portfolio of mortgage
investments."

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 loans for sale to investors on a whole loan basis for cash through
its subsidiary Capital Alliance Funding Corporation.

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

Contact:     Capital Alliance Income Trust, Ltd.
             Richard J. Wrensen, EVP & CFO
             415/ 288-9575
             www.calliance.com

                                       36
<PAGE>
                                   EXHIBIT "C"

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

SAN FRANCISCO--(BUSINESS WIRE)--May 1, 2003--Capital Alliance Income Trust Ltd
("CAIT") (AMEX:CAA - News) announced that its Board has declared a dividend of
$0.45 per Common Share for the second quarter of 2003 - the fourth consecutive
dividend at $0.45 per quarter or annualized rate of $1.80. Based on the current
Common Stock price of $16.84 per share, the annualized dividend yield is 10.69%.
The dividend is payable May 16 to shareholders of record May 7, 2003.

Thomas B. Swartz, CAIT's Chairman and CEO noted that CAIT's revenues of
$2,866,253 for 2002 were marginally better than revenues of $2,858,179 for 2001
and net income of $1,108,264 for 2002 ($1.81 basic and $1.50 diluted) was fairly
even with the $1,142,896 earned in 2001 ($1.46 basic and $1.05 diluted). CAIT
increased its loan loss reserve by $130,000 over that of 2001.

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

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

Contact:     Capital Alliance Income Trust Ltd., San Francisco
             Richard J. Wrensen, EVP & CFO
             415/288-9575
             www.calliance.com

                                       37
<PAGE>
                                   EXHIBIT "D"

                       CAPITAL ALLIANCE INCOME TRUST LTD.
                         ANNOUNCES EARNINGS AND REVENUES
                          FOR THE FIRST QUARTER OF 2003

SAN FRANCISCO--(BUSINESS WIRE)--May 15, 2003--Capital Alliance Income Trust Ltd.
("CAIT") (AMEX:CAA-news) a specialty residential mortgage REIT, operating both
mortgage investment and mortgage banking businesses announced earnings for the
first quarter ending March 31, 2003 of $294,148 ($0.50 basic and $0.43 diluted
per share) as compared to earnings of $306,979 ($0.53 basic and $0.42 diluted
per share) for the like period in 2002. Revenues were $700,633 and $741,478 for
the three months ending March 31, 2003 and 2002, respectively.

Earlier this month, CAIT's Board of Directors declared a dividend of $0.45 per
common share, payable May 16, 2003. Based on the May 14th closing stock price,
CAIT's annualized common share dividend yields 10.5%. Tomorrow's dividend is
CAIT's fourth consecutive $0.45 quarterly common share payment.

Richard J. Wrensen, Executive Vice President and Chief Financial Officer of CAIT
noted that the Company (CAIT and its unconsolidated mortgage banking subsidiary)
has continued to increase its loan loss reserves. Recent macro-economic trends,
including higher unemployment, increased delinquencies and heightened
foreclosure rates suggest increased reserves are necessary and prudent. "As
of March 31, 2003, the Company's combined loan loss reserves equaled 2.17% or
217 basis points of the combined loan portfolios. One year earlier the Company's
reserve was 1.31% or 131 basis points. Our reserve has increased $243,542 or 65%
to protect our shareholders against the weakened economy."

CAIT is a specialty residential lender which originates and invests as a
portfolio lender 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 conforming and non-conforming loans on
residential properties for sale to investors in the secondary market on a whole
loan basis for cash through its mortgage banking subsidiary, Capital Alliance
Funding Corporation. CAIT's investment guidelines limit its portfolio mortgages
to 75% or less of the collateral's appraised value.

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

Contact:     Capital Alliance Income Trust Ltd., San Francisco
             Richard J. Wrensen, CFO - 415/288-9575
             rjwrensen@calliance.com

                                       38