UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                   FORM 10-QSB
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
    ACT OF 1934
                For the quarterly period ended September 30, 2005
                                       OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
    ACT OF 1934

                        Commission File Number: 333-11625

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

              (Exact name of small business issuer in its charter)

          Delaware                                              94-3240473
-------------------------------                          ----------------------
(State or other jurisdiction of                              (I.R.S. Employer
 incorporation or organization)                          Identification Number)

         100 Pine Street
         Suite 2450
         San Francisco, California                             94111
-------------------------------                          ----------------------
         (Address of principal executive office)               (zip code)

                                 (415) 288-9575
--------------------------------------------------------------------------------
                           (Issuer's telephone number)

Securities registered pursuant to Section 12(b) of the Act:

    Title of each class                Name of each exchange on which registered
    -------------------                -----------------------------------------
Common Stock $0.01 par value                    American Stock Exchange

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Securities  Exchange  Act  during the past 12 months (or for
such shorter period that the registrant was required to file such reports),  and
(2) has been subject to such filing requirements for the past 90 days.
Yes X    No
   ---     ---

As of November  1, 2005,  the  issuer's  common  shares  closed at $8.40 and the
aggregate  market value of the issuer's shares of Common Stock,  $.01 par value,
held by non-affiliates of the issuer was approximately  $2,410,800. At that date
approximately  397,000 common shares were  outstanding and 287,000 common shares
were held by non-affiliates.

Transitional Small Business Disclosure Format.     Yes       No  X
                                                      ---       ---

Check whether the registrant is a shell company    Yes       No X
                                                      ---      ---
<PAGE>
                                TABLE OF CONTENTS



PART I

     ITEM 1          FINANCIAL STATEMENTS                                  3-5

                     NOTES TO FINANCIAL STATEMENTS                        6-17

     ITEM 2          MANAGEMENT'S DISCUSSION AND ANALYSIS                18-22

     ITEM 3          CONTROLS AND PROCEDURES                                23

PART II

     OTHER INFORMATION                                                   23-24

     SIGNATURES                                                             25

     CERTIFICATION PURSUANT TO THE SARBANES-OXLEY ACT                       26

     CERTIFICATION OF FORM 10-QSB                                           27







                                     PART I
                                     ITEM 1.


                              FINANCIAL STATEMENTS

                                   [Pages 3-5]

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

                                 Balance Sheets
<TABLE>
<CAPTION>
                                                                             September 30,   December 31,
                                                                                 2005           2004
                                                                                 ----           ----
                                                                              (Unaudited)
<S>                                                                         <C>             <C>
ASSETS
    Cash and cash equivalents                                               $  1,658,188    $    155,462
    Restricted cash                                                              323,736          98,755
    Marketable securities                                                         25,386           1,724
    Accounts receivable                                                          536,263         706,461
    Other assets, net                                                             16,661            --
    Due from affiliates                                                           32,843          23,170
       Mortgage notes receivable                                              20,019,367      19,053,474
       Allowance for losses                                                     (250,000)       (175,000)
                                                                            ------------    ------------
          Net mortgage notes receivable                                       19,769,367      18,878,474
    Real estate owned                                                          1,950,885         680,000
    Asset held for sale                                                        5,515,823       4,981,303
    Origination costs (net)                                                      168,348         243,899
                                                                            ------------    ------------
    Total assets                                                            $ 29,997,500    $ 25,769,248
                                                                            ============    ============

LIABILITIES AND STOCKHOLDERS' EQUITY
    Liabilities
        Mortgage note holdbacks                                             $    323,736    $     98,755
        Loans payable                                                         10,847,024       8,247,541
        Mortgage payable                                                         962,127         551,922
        Liability of asset held for sale                                       4,515,799       2,521,650
        Other liabilities                                                        128,593         274,210
                                                                            ------------    ------------
    Total liabilities                                                         16,777,279      11,694,078
                                                                            ------------    ------------

    Minority interest in subsidiary                                              (12,594)        (12,593)

    Stockholders' Equity
        Preferred stock, $.01 par value; 430,000 shares authorized;                2,138           2,138
          213,820 shares issued and outstanding at September 30, 2005
          and December 31, 2004
        Additional paid in capital - preferred stock                           5,511,859       5,669,123
          Less treasury stock: 3,176 preferred shares
          at September 30, 2005 and December 31, 2004                            (86,944)        (86,944)

        Common stock, $.01 par value; 1,700,000 shares authorized;                 5,001           5,001
          500,032 shares issued and outstanding at September 30, 2005
          and December 31, 2004
        Additional paid in capital - common stock                              9,370,911       9,414,685
          Less treasury stock: 102,000 and 57,707 common shares
          at September 30, 2005 and December 31, 2004                         (1,562,832)     (1,026,861)
        Accumulated other comprehensive income                                    (7,318)            287
        Retained earnings                                                             --         110,334
                                                                            ------------    ------------
    Total stockholders' equity                                                13,220,221      14,075,170
                                                                            ------------    ------------

    Total liabilities and stockholders' equity                              $ 29,997,500    $ 25,769,248
                                                                            ============    ============
</TABLE>

                See accompanying notes to financial statements.

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

                            Statements of Operations
                                  (Unaudited)
<TABLE>
<CAPTION>
                                                                     Three Months Ended               Nine Months Ended
                                                                         September 30,                    September 30,
                                                                     2005            2004          2005           2004
                                                                     ----            ----          ----           ----
<S>                                                              <C>            <C>            <C>            <C>
REVENUES
       Interest income                                           $   587,357    $   451,318    $ 1,702,704    $ 1,497,896
       Interest income from affiliates                                  --           53,627           --          138,064
       Equity in gain (loss) of affiliate                               --            9,599           --           90,446
       Other income                                                      332          1,064          3,690          1,130
                                                                 -----------    -----------    -----------    -----------
           Total revenues                                            587,689        515,608      1,706,394      1,727,536
                                                                 -----------    -----------    -----------    -----------

EXPENSES
       Loan servicing fees to related parties                        154,491        145,363        427,930        378,709
       Management fees to related parties                             55,395         54,360        181,353        182,415
       Interest expense on loans                                     269,010         73,203        676,478        202,412
       Provision for loan losses                                     135,000         45,000        185,000         49,000
       Taxes                                                          10,350          5,000         27,875         15,000
       Amortization                                                   13,050         16,394         33,466         31,574
       General and administrative                                     61,880         72,562        214,137        231,295
                                                                 -----------    -----------    -----------    -----------
             Total expenses                                          699,176        411,882      1,746,239      1,090,405
                                                                 -----------    -----------    -----------    -----------

INCOME (LOSS) FROM CONTINUING OPERATIONS                            (111,487)       103,726        (39,845)       637,131

       Operating (expenses) of real estate owned                        --           (7,976)       (23,900)       (13,474)
       (Loss) on real estate owned                                      --          (15,000)       (82,084)       (50,000)
       Income from asset held for sale                                25,766           --           37,626           --
                                                                 -----------    -----------    -----------    -----------
          Total gain (loss) from assets held for sale and real
          estate owned                                                25,766        (22,976)       (68,358)       (63,474)

NET INCOME (LOSS)                                                    (85,721)        80,750       (108,203)       573,657
                                                                 -----------    -----------    -----------    -----------

PREFERRED DIVIDENDS                                                     --           79,115        159,395        232,692
                                                                 -----------    -----------    -----------    -----------

NET INCOME (LOSS) AVAILABLE TO COMMON                            $   (85,721)   $     1,635    $  (267,598)   $   340,965
                                                                 ===========    ===========    ===========    ===========

BASIC EARNINGS (LOSS) PER COMMON SHARE
       BEFORE ASSETS HELD FOR SALE                               $     (0.27)   $      0.05    $     (0.47)   $      0.92
       FROM ASSETS HELD FOR SALE                                        0.06          (0.05)         (0.16)         (0.14)
                                                                 -----------    -----------    -----------    -----------
       TOTAL EARNINGS PER SHARE                                  $     (0.21)   $      --      $     (0.63)   $      0.78
                                                                 ===========    ===========    ===========    ===========

DILUTED EARNINGS (LOSS) PER COMMON SHARE
       BEFORE ASSETS HELD FOR SALE                               $     (0.27)   $      0.04    $     (0.47)   $      0.79
       FROM ASSETS HELD FOR SALE                                        0.06          (0.04)         (0.16)         (0.12)
                                                                 -----------    -----------    -----------    -----------
       TOTAL EARNINGS PER SHARE                                  $     (0.21)   $      --      $     (0.63)   $      0.67
                                                                 ===========    ===========    ===========    ===========

DIVIDENDS PAID PER PREFERRED SHARE                               $      --      $      0.38    $      0.76    $      1.10
                                                                 ===========    ===========    ===========    ===========

DIVIDENDS PAID PER COMMON SHARE                                  $      --      $      0.30    $      0.10    $      1.20
                                                                 ===========    ===========    ===========    ===========
</TABLE>

                See accompanying notes to financial statements.

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

                            Statements of Cash Flows
                                  (Unaudited)
<TABLE>
<CAPTION>
                                                                                   Nine Months Ended
                                                                                      September 30,
                                                                                 2005            2004
                                                                                 ----            ----
<S>                                                                        <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES
      Net income (loss)                                                    $   (108,203)   $    573,657
      Adjustments to reconcile net income (loss) to net cash provided by
      operating activities:
        Provision for loan losses                                                75,000          49,000
        Amortization                                                             33,466          31,574
        Loss on real estate owned                                                82,084          50,000
        Equity in gain (loss) of affiliate                                           --         (90,446)
        (Increase) decrease in accounts receivable                              170,198         264,470
        (Increase) decrease in other assets                                     (49,803)       (342,604)
          (adjusted for: amortization and capitalized loan fees)
        Change in due to / due from affiliates                                   (9,673)        103,511
        Increase (decrease) in other liabilities                               (145,617)        (75,967)
                                                                           ------------    ------------
          Net cash (used in) provided by operating activities                    47,452         563,195
                                                                           ------------    ------------

CASH FLOWS FROM INVESTING ACTIVITIES
      Sale of (investment in) marketable securities                             (31,908)          8,084
      Decrease in origination costs                                              75,551          72,225
      Decrease in related party warehousing facilities                        1,415,487          96,185
      (Increase) in real estate owned                                        (1,270,885)             --
      Payment of mortgage payable                                               410,205              --
      (Income) from asset held for sale                                         (37,626)             --
      (Increase) decrease in mortgage notes receivable                         (965,893)      4,663,537
                                                                           ------------    ------------
        Net cash (used in) provided by investing activities                    (405,069)      4,840,031
                                                                           ------------    ------------

CASH FLOWS FROM FINANCING ACTIVITIES
      Proceeds from loans payable                                             2,599,483       6,155,749
      Payments of loans payable                                                      --     (11,750,000)
      Issuance of common stock                                                       --              --
      Purchase of treasury stock                                               (535,971)         (1,833)
      Sale of treasury stock and exercised options                                   --          28,735
      Preferred dividends paid                                                 (159,395)       (232,692)
      Common dividends paid                                                     (43,774)       (524,119)
                                                                           ------------    ------------
        Net cash provided by (used in) financing activities                   1,860,343      (6,324,160)
                                                                           ------------    ------------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                          1,502,726        (920,934)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                155,462       1,038,010
                                                                           ------------    ------------

CASH AND CASH EQUIVALENTS AT END OF PERIOD                                 $  1,658,188    $    117,076
                                                                           ============    ============

SUPPLEMENTAL CASHFLOW INFORMATION:
      Cash paid for interest                                               $          6    $    200,382
      Cash paid for taxes                                                  $     24,886    $     10,855
</TABLE>

                See accompanying notes to financial statements.

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

                         Notes to Financial Statements
                                  (Unaudited)

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

     References to the "Company" refer to Capital  Alliance Income Trust Ltd., A
     Real Estate  Investment Trust (the "Trust"),  a Delaware  corporation,  and
     Capital Alliance Funding Corporation ("CAFC"),  collectively. 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's
     investment in CAFC, a taxable  subsidiary,  is consolidated.  CAFC acquires
     loans for sale,  secured by deeds of trust on one-to-four  unit residential
     property as the loans primary collateral.


2.   Unaudited financial statements
     ------------------------------

     The accompanying condensed consolidated financial statements of the Company
     as of  September  30,  2005 and for the three and nine  months  ended as of
     September 30, 2005 and 2004 are unaudited and reflect all  adjustments of a
     normal and recurring  nature to fairly present the  consolidated  financial
     position,  results of  operations  and cash flows for the interim  periods.
     These  unaudited,  condensed  consolidated  financial  statements have been
     prepared by the Company  according  to the  instructions  for From  10-QSB.
     Pursuant to these instructions,  certain financial information and footnote
     disclosures  normally  included  in such  financial  statements  have  been
     condensed or omitted.

     These  unaudited,   condensed  financial   statements  should  be  read  in
     conjunction with the audited  consolidated  financial  statements and notes
     thereto,  together  with  management's  discussion  and analysis or plan of
     operations, contained in the Company's Annual Report on Form 10-KSB for the
     year ended  December 31, 2004.  The results of operations for the three and
     nine months ended September 30, 2005 are not necessarily  indicative of the
     results that may occur for the year ending December 31, 2005.

     The  condensed  consolidated  balance  sheet as of  December  31,  2004 was
     derived from audited consolidated financial statements but does not include
     all  disclosures  required by  generally  accepted  accounting  principals,
     although  management believes that the disclosures are adequate to not make
     the information presented misleading.

3.   Selected accounting policies
     ----------------------------

     Basis of accounting.  FIN 46(R) requires the consolidation of CAFC into the
     Trust's  financial  statements  as of December  31,  2004.  Pursuant to the
     reporting  requirement  of FAS 144,  CAFC's  consolidation  is  reported as
     "Asset held for sale",  "Liability  of asset held for sale",  and "Minority
     interest in  subsidiary"  on the Trust's  balance sheet and as "Income from
     asset held for sale" on the Trust's statement of operating results.  Income
     from asset held for sale is  presented  (after  eliminations)  on the Trust
     operating revenues.

     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 reported amounts of assets and liabilities and disclosure of contingent
     assets and  liabilities  at the date of the  financial  statements  and the
     reported  amounts of revenues and  expenses  during the  reporting  period.
     Actual results could differ from those estimates.

     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.

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

                         Notes to Financial Statements
                                  (Unaudited)

3.   Selected accounting policies (continued)
     ----------------------------------------

     Allowance for loan loss reserve. 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.  Notes  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.

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

     Impairment  policy.  The  impairment of long-lived  assets is assessed when
     events or changes in circumstances indicate that the carrying value of such
     assets  exceeds the future  undiscounted  cash flows  attributable  to such
     assets.  If this occurs,  an impairment  loss measured as the excess of the
     net book value of the assets over their fair value is  recorded.  The Trust
     has  identified  CAFC as an "Asset  held for sale"  within  the  guidelines
     Statement of Financial  Accounting  Standards No. 144,  "Accounting for the
     Impairment or Disposal of Long-Lived  Assets" ("FAS 144") (see "Assets held
     for  sale"  within  Note  2 -  below).  There  were  no  impairment  losses
     recognized during the nine month period ended September 30, 2005 and 2004.

     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.  However, if the mortgage's
     collateral is considered  insufficient to satisfy the outstanding  balance,
     after estimated foreclosure and selling costs, interest is not accrued.

     Stock options.  Statement of Financial  Accounting  Standards No. 148 ("FAS
     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   ("FAS   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 FAS 123 to require  prominent  disclosures  in both  annual and  interim
     financial  statements  about  the  method  used on  reported  results.  The
     alternative methods of transition of FAS 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 FAS 148 is effective for years ending after December 15, 2002.
     The Company follows APB 25 in accounting for stock options.  The disclosure
     provision of FAS 148 is effective for years ending after  December 15, 2002
     and has been incorporated into these financial  statements and accompanying
     footnotes.

     The 2005 and 2004  calculation of the fair value of the stock-based  awards
     to the Manager and its employees is not  applicable  because no awards were
     issued.

     The Trust accounts for stock options under APB 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.  Basic  and  diluted  net loss per  share  information  for all
     periods is presented  under the  requirement of FAS No. 128,  "Earnings per
     Share" ("FAS 128").  Basic  earnings per share have been computed using the
     weighted-average  number  of  shares  outstanding  during  the  period  and
     excludes any dilutive effects of stock options,  warrants,  and convertible
     securities.

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

                         Notes to Financial Statements
                                  (Unaudited)

3.   Selected accounting policies (continued)
     ----------------------------------------

     Potentially  dilutive securities have been excluded from the computation of
     diluted net loss per share, as their inclusion  would be  antidilutive.  If
     the Company had reported net income available to common  shareholders,  the
     calculation of diluted earnings per share would have included approximately
     an additional  30,858 and 33,913 common shares (computed using the treasury
     stock method) related to the outstanding  options and warrants not included
     above for the three and nine months end September 30, 2005, respectively.

     The pro forma results of reporting the Company's  stock option grants using
     the fair value method  consistent  with FAS 123, is presented for the three
     and nine months end September 30, 2005 and 2004:

<TABLE>
<CAPTION>
                                                              Three months ended            Nine months ended
                                                                 September 30                 September 30
                                                             2005           2004           2005          2004
                                                             ----           ----           ----          ----
<S>                                                       <C>             <C>          <C>           <C>
     Net income (loss) available to common stock          $(85,721)       $ 1,635      $(267,598)    $ 340,965
     Less: Stock based expense
          using the fair value method                          ---           ---             ---           ---
                                                          --------        -------      ---------      --------
     Pro forma net income (loss) available to
          common stock                                    $(85,721)       $ 1,635      $(267,598)     $340,965
                                                          ========        =======      =========      ========
     Net income (loss) per common share:
     Basic:
          As reported                                       $(0.21)         $0.00         $(0.63)        $0.78
          Pro forma                                         $(0.21)         $0.00         $(0.63)        $0.78
     Diluted:
          As reported                                       $(0.21)         $0.00         $(0.63)        $0.67
          Pro forma                                         $(0.21)         $0.00         $(0.63)        $0.67
</TABLE>

     Reclassifications.  Certain  2004  amounts  may have been  reclassified  to
     conform to the 2005 presentation.  Such  reclassifications had no effect on
     previously reported net income or earnings per share.

     Assets held for sale.  On November  11,  2004,  CAFC's  common  shareholder
     notified the Trust of its  intention  to retire 100% of the CAFC  Preferred
     Stock  owned  by the  Trust  and  concurrently  issue a new  class  of CAFC
     Preferred  Shares during the 4th quarter of 2005. The new Preferred  Shares
     will not be issued to the Trust. Therefore,  pursuant to FAS 144, the Trust
     has reported  CAFC as an asset held for sale.  The Trust does not expect to
     recognize a loss on the transaction. During the nine months ended September
     30,  2004,  the  Trust  reported  its  ownership  of CAFC as an  investment
     pursuant to the equity  method of  accounting as the Trust does not own the
     voting  common  shares of CAFC or control  CAFC.  (See  "Recent  accounting
     pronouncements"  within Note 2 - below.) CAFC's September 30, 2005 and 2004
     financial statements are reported in Note 8.

     Recent  accounting  pronouncements.  In December 2004, the FASB issued FASB
     Statement No. 123 (revised  2004) ("FAS  123(R)"),  "Share-Based  Payment,"
     which is a revision of FASB Statement No. 123 ("FAS 123"),  "Accounting for
     Stock-Based  Compensation."  FAS  123(R)  supersedes  APB  Opinion  No. 25,
     "Accounting  for Stock Issued to Employees,"  and amends FASB Statement No.
     95,  "Statement  of Cash Flows."  Generally,  the approach in FAS 123(R) is
     similar to the approach described in FAS 123. However,  FAS 123(R) requires
     all share-based  payments to employees,  including grants of employee stock
     options,  to be  recognized  in the  income  statement  based on their fair
     values.  Pro forma  disclosure  is no longer an  alternative  to  financial
     statement  recognition.  The  Company  will be required to adopt FAS 123(R)
     beginning on January 1, 2006. The adoption of FAS 123(R) is not expected to
     have a material effect on the Company's  financial  position and results of
     operations.

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

                         Notes to Financial Statements
                                  (Unaudited)

4.   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 September 30,
     2005 and December 31, 2004, the Trust  advanced to CAFC $0 and  $1,415,487,
     respectively.  The interest  rate on this line of credit varies with market
     conditions and is payable  monthly.  As of September 30, 2005 and 2004, the
     applicable interest rate was 9.75% and 7.50% respectively. During the three
     and nine months end September 30, 2005 and 2004, the Trust earned  interest
     in  the  amount  of  $26,020  and   $53,627   and  $81,767  and   $138,064,
     respectively.

5.   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.

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

<TABLE>
<CAPTION>
                                                   Nine months ended         Twelve months ended
                                                  September 30, 2005          December 31, 2004
                                                  ------------------          -----------------
<S>                                                  <C>                       <C>
     Balance, beginning of period                    $ 19,053,474              $ 20,556,488
     Additions during period:
         New mortgage loans                            14,006,500                13,973,068
     Deductions during period:
         Collections of principal                     (12,306,266)              (15,214,076)
         Foreclosures, net of reserve                    (734,341)                 (168,078)
         Write off of uncollectible loans            ------------                   (93,928)
                                                                               ------------
     Balance, end of period                          $ 20,019,367              $ 19,053,474
                                                     ============              ============
</TABLE>

6.   Allowance for loan 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 estimates a $250,000 and $175,000 allowance for loan
     losses are adequate to protect  against  potential  losses  inherent in all
     receivables  as of September 30, 2005 and December 31, 2004,  respectively.
     The Trust's actual losses may differ from the estimate.

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

<TABLE>
<CAPTION>
                                                      Nine months ended       Twelve months ended
                                                     September 30, 2005        December 31, 2004
                                                     ------------------        -----------------
<S>                                                     <C>                       <C>
     Balance, beginning of period                       $  175,000                $  206,000
     Provision for loan loss                               185,000                    84,000
     Write off of uncollectible loans                     (110,000)                  (93,928)
     Disposal costs of uncollectible loans                     ---                   (21,072)
                                                        ----------                ----------
     Balance, end of period                             $  250,000                $  175,000
                                                        ==========                ==========
</TABLE>

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

                         Notes to Financial Statements
                                  (Unaudited)

7.   Real estate owned
     -----------------

     As of December  31,  2004,  the Trust owned one  property.  During the nine
     months  ended  September  30,  2005,  the Trust sold the one  property  and
     acquired  another  property.  As of September  30, 2005,  the Trust had one
     property.

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

<TABLE>
<CAPTION>
                                                                  Nine months ended           Twelve months ended
                                                                 September 30, 2005            December 31, 2004
                                                                 ------------------            -----------------
<S>                                                                    <C>                            <C>
     Balance, beginning of period                                      $   680,000                    $  415,000
     Foreclosed mortgage notes, net of reserve (non-cash)                  988,758                       168,078
     Assumption of senior debt                                             410,205                       551,922
     Accrued interest capitalized (non-cash)                                   ---                      (102,800)
     Gain (loss) on sale or writedown (non-cash)                           (82,084)                       (2,604)
                                                                        ----------                    ----------
                                                                         1,996,879                     1,029,596
     Less: Proceeds from sale of real estate owned (net of
     closing costs of $47,038 and $30,418 in 2005 and                      (45,944)                     (349,596)
                                                                       -----------                    ----------
     2004, respectively)
     Balance, end of period                                            $ 1,950,885                    $  680,000
                                                                       ===========                    ==========
</TABLE>

8.   Asset held for sale
     -------------------

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

     On April 11, 1997, the Trust formed a non-qualified REIT subsidiary,  CAFC,
     to  conduct  a  mortgage  banking  business.  The  Trust  owns  all  of the
     outstanding  Series "A" Preferred Stock (2,000 shares of non-voting stock),
     which constitutes a 99% economic interest in CAFC. The Trust's Manager owns
     all 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.
     During the nine months ended  September 30, 2004,  the Trust  accounted for
     its investment in CAFC under the equity method of accounting.

     On November 11, 2004,  the Manager  notified the Trust of its  intention to
     retire 100% of CAFC's  preferred stock owned by the Trust and  concurrently
     issue a new class of CAFC preferred  stock.  The new preferred  shares will
     not be issued to the Trust.  This  transaction  is expected to close during
     the 4th  quarter  of  2005  without  a gain  or loss on sale to the  Trust.
     Therefore,  the FIN  46(R)  consolidation  of CAFC  into the  Trust and the
     Trust's economic  interest in CAFC are presented  pursuant to FAS 144 as an
     asset held for sale.


                    [ REMAINDER OF PAGE INTENTIONALLY BLANK ]



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

                         Notes to Financial Statements
                                  (Unaudited)

                      CAPITAL ALLIANCE FUNDING CORPORATION
                                 BALANCE SHEETS
                 As of September 30, 2005 and December 31, 2004

<TABLE>
<CAPTION>
                                                                  September 30,  December 31,
                                                                      2005          2004
                                                                      ----          ----
<S>                                                               <C>            <C>
ASSETS
        Cash and cash equivalents                                 $   809,534    $   156,592
        Accounts receivable                                            32,514        134,971
        Mortgage notes receivable                                   4,667,704      4,674,462
        Allowance for loan losses                                     (40,500)       (40,000)
                                                                  -----------     ----------
             Net mortgage notes receivable                          4,627,204      4,634,462
        Due from affiliate                                                 --         30,908
        Investment in affiliate                                         5,000          5,000
        Other assets                                                   41,571         19,370
                                                                  -----------    -----------
        Total assets                                              $ 5,515,823    $ 4,981,303
                                                                  ===========    ===========

LIABILITIES AND STOCKHOLDERS' EQUITY

        Liabilities
             Warehousing facilities                               $ 3,810,134    $ 2,418,858
             Warehousing facilities from related parties                   --      1,415,487
             Due to affiliates                                        671,606         30,176
             Accrued interest                                          13,530          6,644
             Other liabilities                                         20,529         65,974
                                                                  -----------    -----------
        Total liabilities                                           4,515,799      3,937,139

        Stockholders' equity
             Preferred shares, no par value, 2,000 shares                  --             --
                authorized, 2,000 shares issued and outstanding
             Common shares, no par value, 1,000 shares                     --             --
                authorized, 1,000 shares issued and outstanding
             Additional paid in capital                             1,990,056      1,990,056
             Accumulated deficit                                     (990,032)      (945,892)
                                                                  -----------    -----------
        Total stockholders' equity                                  1,000,024      1,044,164
                                                                  -----------    -----------

        Total liabilities and stockholders' equity                $ 5,515,823    $ 4,981,303
                                                                  ===========    ===========
</TABLE>

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

                         Notes to Financial Statements
                                  (Unaudited)

                      CAPITAL ALLIANCE FUNDING CORPORATION
                            STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
                                                               Three Months Ended           Nine months Ended
                                                                  September 30                September 30
                                                              2005          2004          2005           2004
                                                              ----          ----          ----           ----
<S>                                                     <C>            <C>           <C>            <C>
REVENUES

        Interest income                                 $   118,385    $   269,883   $   341,333    $   666,641
        Loan origination income                             192,093        227,772       540,636        592,786
        Service release premium                             178,074         43,608       341,718        105,417
        Other income                                          4,105          3,058        45,223          3,158
                                                        -----------    -----------   -----------    -----------
             Total revenues                                 492,657        544,321     1,268,910      1,368,002

EXPENSES

        Management fees to related party                     26,806         17,256        86,155         57,562
        Interest expense on warehousing facilities          118,041        123,031       238,902        346,309
        Interest expense on related party warehouse          26,020         74,427        81,767        165,376
        facility
        Loan origination costs                               76,411         66,635       163,112        158,085
        Provision for loan losses                             4,500         13,153         8,500         23,153
        Wages and salaries                                  157,176        163,892       453,184        441,811
        Taxes                                                    91          3,998         2,892         15,043
        General and administrative                           89,866         72,271       284,539        208,661
                                                        -----------    -----------   -----------    -----------
             Total expenses                                 498,911        534,663     1,319,051      1,416,000

INCOME (LOSS) BEFORE GAIN (LOSS) ON REAL ESTATE OWNED        (6,254)         9,658       (50,141)       (47,998)
                                                        -----------    -----------   -----------    -----------

          Operating expenses of real estate owned              --             --            --          (22,990)
                                                                                           6,000        162,304
          Gain on sale of real estate owned                   6,000           --
                                                        -----------    -----------   -----------    -----------

NET INCOME (LOSS)                                       $      (254)   $     9,658   $   (44,141)   $    91,316
                                                        ===========    ===========   ===========    ===========
</TABLE>

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

                         Notes to Financial Statements
                                  (Unaudited)

8.   Asset held for sale (continued)
     -------------------------------

     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:

                                      Nine months ended      Twelve months ended
                                     September 30, 2005       December 31, 2004
                                     ------------------       -----------------

     Balance, beginning of period        $  4,674,462             $ 7,383,040
     Additions during period:
         Originations                      53,794,795              52,426,211
         Transferred from Trust                   ---               2,014,649
     Deductions during period:
         Repayments                        (2,066,311)             (3,801,481)
         Sales                            (51,735,242)            (53,324,127)
         Foreclosures                             ---                     ---
         Write offs                               ---                 (23,830)
                                         ------------             -----------
     Balance, end of period              $  4,667,704             $ 4,674,462
                                         ============             ===========

     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.
     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 loan 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 $40,500 and $40,000 allowance for losses
     is adequate to protect against potential losses inherent in all receivables
     as of September 30, 2005 and December 31, 2004, respectively. CAFC's actual
     losses may differ from the estimate.

     A reconciliation of the allowance for losses follows:

                                          Nine months ended  Twelve months ended
                                         September 30, 2005   December 31, 2004
                                         ------------------   -----------------

     Balance, beginning of period                $  40,000           $ 100,000
     Provision for loan loss                         8,500             (36,170)
     Write off of uncollectible balances            (8,000)            (23,830)
                                                 ---------           ---------
     Balance, end of period                      $  40,500           $  40,000
                                                 =========           =========

                                       13
<PAGE>
                         CAPITAL ALLIANCE INCOME TRUST
                         A REAL ESTATE INVESTMENT TRUST

                         Notes to Financial Statements
                                  (Unaudited)

8.   Asset held for sale (continued)
     -------------------------------

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

     The Manager earns an  administration  fee up to 25 basis points on mortgage
     loans funded for the benefit of CAFC and  reimbursed  for  specific  direct
     expenses as defined in the First Amended Residential Mortgage Loan Services
     Agreement. As of September 30, 2005 and 2004, CAFC has expensed $86,155 and
     $57,562, respectively.

     CAFC  received an advance of $0 and  $1,415,487  under a warehouse  line of
     credit from the Trust,  as of  September  30, 2005 and  December  31, 2004,
     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  September  30, 2005 and  December 31, 2004 was
     the Prime Rate plus 3.00%.  CAFC expensed  interest of $81,767 and $165,376
     as of September 30, 2005 and 2004, 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 September 30,
     2005,  CAFC had a payable  of  $16,981  to the  Manager  and a  payable  of
     $654,625 to CRF. As of December 31, 2004,  CAFC had a receivable of $30,908
     from the Manager and a payable of $30,176 to the Trust.  These accounts are
     shown  on the  balance  sheet  as part of Due to  affiliates  and Due  from
     affiliates, respectively. No interest is charged on these accounts.

     During the first nine months of 2005 and 2004,  CAFC sold  $14,006,500  and
     $5,406,681, respectively, in loans to the Trust, at par value.

9.   Loans payable
     -------------

     As of June  30,  2004,  CAFC  obtained  a  three-year  $25,000,000  funding
     agreement. The agreement provides an advance rate of up to 80% on the notes
     outstanding balance at an interest rate floor of 5.00% and a ceiling of the
     Prime Rate plus 4.0%.  Through a tri-party  agreement  among CAFC, CRF, and
     the  Trust,  both  CRF and the  Trust  are  able to  utilize  this  funding
     agreement  for a fee of 3 basis  points per month of the end of the month's
     financed  mortgage notes  receivable  principal  balance.  All benefits and
     costs of ownerships and financing of the financed loans  including the risk
     of principal  loss inure to either CRF or the Trust.  As of  September  30,
     2005, the outstanding balance assigned to the Trust was $10,847,024.

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

     The Trust has financed a portion of its treasury stock  repurchases in 2004
     by  borrowing on margin from an  investment  bank.  The amount  borrowed on
     margin accrues fees at a rate that has historically approximated the broker
     call rate (5.50% as of September 30, 2005 and 4.0% as of December 31, 2004)
     plus 1.50%.  Margin debt is callable at the  discretion  of the  investment
     bank and subject to their assessment of the value of the collateral.  As of
     September 30, 2005 and December 31, 2004, the Trust owed $0 in margin debt.


10.  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 Trust paid the Manager $54,895 and $51,360

                                       14
<PAGE>
                         CAPITAL ALLIANCE INCOME TRUST
                         A REAL ESTATE INVESTMENT TRUST

                         Notes to Financial Statements
                                  (Unaudited)

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

     and $178,353 and $68,404,  in management  fees for the three and nine month
     period  ended  September  30,  2005  and  2004,  respectively.  Within  the
     financial  statements,  the management  fees are included in the Management
     fees to related parties.

     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  $500 and  $3,000 and $3,000 and $5,500 in REO
     management  fees for the three and nine month  period ended  September  30,
     2005  and  2004,  respectively.   Within  the  financial  statements,   REO
     management fees 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 and nine month period
     ended  September  30,  2005  and  2004  was $0  and $0 and $0 and  $14,484,
     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 2004, the Trust capitalized 32.5%
     of this fee as loan  origination  costs and amortized them over the average
     life of the  portfolio.  The remaining  67.5% of the fee is expensed as the
     portion  attributed  for  servicing.  As of September  30, 2005,  the Trust
     capitalized  32.5% of this fee as origination costs and amortized them over
     the  average  life of the  portfolio.  The  remaining  67.5% of the fee was
     expensed as the portion  attributed for  servicing.  For the three and nine
     month period ended  September  30, 2005 and 2004,  the Trust  expensed loan
     origination  and  servicing  fees of $154,491 and $145,362 and $427,930 and
     $122,404, respectively.

     On  occasion,  the Trust and its  affiliates  had related  receivables  and
     payables arising from ordinary business  transactions.  As of September 30,
     2005, the Trust had no related payables or receivables.  As of December 31,
     2004, the Trust had a receivable of $23,170 from the Manager and $0 was due
     to CAFC and CRF. No interest is charged on these inter-company accounts.

11.  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 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.

                                       15
<PAGE>
                         CAPITAL ALLIANCE INCOME TRUST
                         A REAL ESTATE INVESTMENT TRUST

                         Notes to Financial Statements
                                  (Unaudited)

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

     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.

12.  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.

     The activity in the Plan for the nine months end September 30, 2005 and the
     twelve months ended December 31, 2004 follows:

                                                                Weighted average
                                                   Options       exercise price
                                                   -------       --------------
      Outstanding at January 1, 2004               183,700           $10.60
                     Granted                           ---              ---
                     Exercised                     (10,105)            9.40
                     Forfeited                         ---              ---
                                                   -------          -------
      Outstanding at December 31, 2004             173,595          $ 10.67
                     Granted                           ---              ---
                     Exercised                         ---              ---
                     Forfeited                         ---              ---
                                                   -------          -------
      Outstanding at September 30, 2005            173,595           $10.67
                                                   =======           ======
      Outstanding options exercisable as of
                     January 1, 2004               183,700          $ 10.60
                     December 31, 2004             173,595            10.67
                     September 30, 2005            173,595            10.67

     All the Plan's stock  options have been granted and the  unexercised  stock
     options are 100% vested.

                                       16
<PAGE>
                         CAPITAL ALLIANCE INCOME TRUST
                         A REAL ESTATE INVESTMENT TRUST

                         Notes to Financial Statements
                                  (Unaudited)

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

     The following table  summarizes  information  with respect to stock options
     outstanding at September 30, 2005:

<TABLE>
<CAPTION>
                                                   Options outstanding
                                  -----------------------------------------------------------
                                                     Weighted-average
                                    Number of     remaining contractual     Weighted- average
        Range of exercise prices     shares            life (years)          exercise price
                                  ------------- ----------------------- ---------------------
      <S>                           <C>                   <C>                  <C>
        $9.00 - $9.06               109,845               4.85                 $  9.03
        $13.50                       63,750               3.50                   13.50
                                    -------               ----                 -------
                                    173,595               4.36                 $ 10.67
                                    =======               ====                 =======
</TABLE>

13.  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 and nine months end September 30, 2005 and 2004:

<TABLE>
<CAPTION>
                                                               Three months ended            Nine months ended
                                                                  September 30                  September 30
                                                               2005           2004          2005           2004
<S>                                                        <C>            <C>           <C>             <C>
     Numerator:
     Net income (loss)                                     $ (85,721)     $  80,750     $ (108,203)     $ 573,657
     Preferred dividends                                         ---        (79,115)      (159,395)      (232,692)
                                                           ---------      ---------     ----------      ---------
     Numerator for basic and diluted earnings per
     share income (loss) available to common               $ (85,721)     $   1,635     $ (267,598)     $ 340,965
                                                           =========      =========     ==========      =========
     Denominator:
         Basic weighted average shares                       403,715        439,454        420,658        437,251

         Dilutive effect of options                              ---         67,133            ---         72,666
                                                           ---------      ---------     ----------      ---------
         Diluted weighted average shares                     403,715        506,587        420,658        509,917
                                                           =========      =========     ==========      =========
     Basic earnings per common share                       $   (0.21)     $    0.00     $    (0.63)     $    0.78
                                                           =========      =========     ==========      =========
     Diluted earnings per common share                     $   (0.21)     $    0.00     $    (0.63)     $    0.67
                                                           =========      =========     ==========      =========
</TABLE>

                                       17
<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
and nine months end September 30, 2005 and 2004 follows:

OVERVIEW

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

From 1997 through 2003, the Trust's financial statement reported CAFC by the
equity method of accounting. The equity method of accounting records an equity
investment at cost and adjusts it by the investment's share of earnings or
losses and decreases it by dividends received.

For year end 2004, the Trust implemented reporting CAFC pursuant to the
requirement of Financial Accounting Standards Board Interpretation No.46 ("FIN
46(R)"). The interpretation requires the consolidation of variable interest
entities such as CAFC and the Trust's Mortgage Investment and Warehouse Lending
Businesses to report the Company's results.

Prior to year end 2004, Management identified CAFC as an asset held for sale
within the meaning of Financial Accounting Standard No.144 ("FAS 144"). On
November 11, 2004, CAFC's common shareholder notified the Trust of its intention
to retire 100% of CAFC's preferred stock. The Trust's investment in CAFC is
entirely comprised of preferred stock. The Trust's preferred shares are
available for immediate delivery and the transaction is expected to be completed
during the 4th quarter of 2005. Management expects the sale of the Trust's CAFC
preferred stock to approximate its fair value and to result in neither a gain
nor a loss.

Since the pending transfer of the Trust's interest in CAFC satisfies the
disposal criteria of FAS 144, the Trust's interest in CAFC's net income is
presented as a non-revenue line item in the Trust's September 30, 2005
consolidated statement of operations and CAFC's assets are reported in the
Trust's December 31, 2004 and September 30, 2005 consolidated balance sheet as
an asset held for sale.

Management believes the retirement of the Trust's preferred share investment in
CAFC will provide numerous benefits. These benefits include: restoring the Trust
to its original intent as an investor in non-conforming mortgages; reducing a
source of volatility in the Trust's reported net income; reducing the cost of
annual audits and quarterly reviews; reducing the costs of Sarbanes Oxley
compliance; reducing the number of related party transactions; simplifying the
process of cost allocation; and accelerating the compilation and reporting of
operating results. The costs of disposing of the Trust's investment in CAFC
include: the loss of CAFC's potential profitability; less control over the
mortgage investment supply chain; and restrictions of the Trust's access to
CAFC's funding agreement. During the nine months end September 30, 2005 and the
twelve months ended December 31, 2004, 2003, 2002, 2001, and 2000, CAFC has
generated net income or (net loss) of $(44,141), $134,745, ($162,763),
($25,901), $385,006, ($494,452), respectively, or a cumulative (net loss) of
($207,506) during the last five and three quarter years. CAFC has never paid a
dividend.

                                       18
<PAGE>
The recent interest rate environment has profoundly reduced the profitability of
CAIT. The rise in short term rates and the "conundrum" of stable or declining
longer term rates has increased the cost of carrying a mortgage portfolio and
decreased the yield on new mortgage investments. Additionally, the
non-conforming residential mortgage market has continued to attract better
financed competitors willing to offer higher LTV loans or more competitive
pricing. These developments have further reduced CAIT's investment yield. In the
fifteen months since June 30, 2004, CAIT's weighted average portfolio yield has
declined 1.51% from 12.47% to 10.96%. Management is addressing this
deterioration in yield and spread by emphasizing our ability to timely close
transactions in order to deflect price competition and by seeking more
competitive portfolio financing.

CRITICAL ACCOUNTING POLICIES

The following are critical accounting policies that require the most significant
estimates and assumptions that are particularly susceptible to a significant
change in the preparation of the financial statements and are not presented in
their relative order of importance.

Revenue recognition. Interest income accrues as it is earned. Loans 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 to the
ultimate collectibility of principal or interest. Nonaccrual status loans are
returned to an accrual status when principal and interest become current and are
anticipated to be fully collectible.

Allowance for loan losses. A provision for loan losses 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 reasonably assumed, considers among other
matters, general economic conditions, the fair market value or the estimated net
realizable value of the underlying collateral, past loan loss experience, trends
in loan delinquency and other factors that warrant recognition in providing for
an adequate loan loss allowance to absorb inherent losses.

Assets held for sale. CAFC is identified as an asset held for sale and disposal
of this asset is expected within the twelve month period permitted by FAS 144.
On November 11, 2004, the Manager notified the Trust of its intention to retire
100% of the CAFC preferred stock owned by the Trust and concurrently issue a new
class of CAFC preferred to CAFC's sole common shareholder. The Trust does not
expect to recognize any loss on the transaction.

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.

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.

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's appraised value at origination).

                                       19
<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, making required advances, accounting for principal and interest
payments, holding borrowed proceeds in escrow until fulfillment of mortgage loan
requirements, contacting delinquent borrowers, supervising foreclosures and
property dispositions in the event of unremedied defaults and performing other
administrative duties. All or a portion of the aforementioned servicing
responsibilities may be subcontracted by the Manager.

Commitments and Contingencies. As of September 30, 2005, the Trust's loan
portfolio included 50 loans totaling $20,019,367 of which six loans totaling
$2,476,530 representing 12% of the loan portfolio were delinquent over two
payments. After adjusting the September 30, 2005 delinquent balances for
payments received through October 31, 2005, four loans totaling $801,530 or 4%
of the loan portfolio were delinquencies in excess of two payments. In assessing
the collectibility of these delinquent mortgage loans, management has
established a loan loss reserve of $250,000, if it is necessary to foreclose
upon the mortgage loans.

As of September 30, 2004, the Trust's loan portfolio included 57 loans totaling
$15,892,951 of which 5 loans totaling $1,620,928 representing 10% of the loan
portfolio were delinquent over two payments. In assessing the collectibility of
these delinquent mortgage loans, management has established a loan loss reserve
of $140,000, 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 September 30, 2005
and September 30, 2004.

<TABLE>
<CAPTION>
        Maximum Other                                        Amount of Commitment Expiration Per Period
 Commercial Commitments (a)    Total Amounts   ---------------------------------------------------------------------
  as of September 30, 2005       Committed        Less than       1 - 3 years          4 - 5           After 5
                                                   1 year                              years            years
------------------------------ --------------- ---------------- ----------------- ---------------- -----------------
<S>                              <C>                  <C>         <C>                    <C>              <C>
Lines of Credit (b)              $10,847,024          0           $10,847,024            0                0
------------------------------ --------------- ---------------- ----------------- ---------------- -----------------
Standby Repurchase                  (c)               0                0                 0                0
Obligations
------------------------------ --------------- ---------------- ----------------- ---------------- -----------------
Total Commercial Commitments    $10,847,024           0           $10,847,024            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)  The Mortgage Investment Business outstanding obligations as of September
     30, 2005 due in 1-3 years were $10,847,024.

(c)  The 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.

RESULTS OF OPERATIONS

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

Three and nine months ended September 30, 2005 and 2004. Revenues for the third
quarter increased to $587,689 as compared to $515,608 for the same period in the
prior year. The increase in revenue, during the third quarter of 2005 was due to
CAIT's larger portfolio which provided more interest revenue of $136,039.

Expenses for the third quarter 2005 increased to $699,176 as compared to
$411,882 for the same period in the prior year. The increase in expenses during
the third quarter of 2005 was largely due to greater interest expenses of
$195,807, a larger loan loss reserve of $90,000 and increased loan servicing and
origination expenses of $9,128.

                                       20
<PAGE>
Revenues for the nine months ended September 30, 2005 decreased to $1,706,394 as
compared to $1,727,536 for the same period in the prior year. The decrease in
revenue, during the first nine months of 2005 was due to a reduction of $138,064
in interest income from affiliate and a reduction in equity in gain of affiliate
of $90,446, as CAFC is being reported as an asset held for sale. CAIT's larger
portfolio provided more interest revenue of $204,808.

Expenses for the nine months ended September 30, 2005 increased to $1,746,239 as
compared to $1,090,405 for the same period in the prior year. The increase in
expenses during the first nine months of 2005 was primarily due to increased
interest expenses of $474,066, a larger loan loss reserve of $136,000, and
increased loan servicing and origination expenses of $49,221.

LIQUIDITY AND CAPITAL RESOURCES

During 2004, CAFC obtained a three year $25,000,000 funding facility. Pursuant
to a tri-party agreement among CAFC, CRF, and the Trust, the Trust can use this
funding facility. All benefits and costs of ownership and financing of the
Trust's loans will inure to the Trust.

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 2005 will be sufficient to meet the liquidity
needs of the Trust's businesses for the next twelve months.

Nine months end September 30, 2005 and 2004. As of January 1, 2005 and 2004, the
Trust had $155,462 and $1,038,010 of cash and cash equivalents, respectively.
During the nine month period ended September 30, 2005, cash and cash equivalents
increased by $1,502,726. During the nine month period ended September 30, 2004,
cash and cash equivalents decreased by $920,934, respectively. After taking into
effect the various transactions discussed below, cash and cash equivalents at
September 30, 2005 and 2004 were $1,658,188 and $117,076.

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 nine months end September
30, 2005 and 2004 was $47,452 and $563,195, respectively. During the first nine
months of 2005, net income used $108,203, a decrease in other assets used
$49,803, a decrease in other liabilities used $145,617 and a decrease in
accounts receivable provided $170,198. During the first nine months of 2004, net
income provided $573,657, a decrease in accounts receivable provided $264,470, a
net decrease in due from affiliates provided $103,511 and a net increase in
other assets used $342,604.

Net cash used in and provided by investing activities for the nine months end
September 30, 2005 and 2004 was $405,069 and $4,840,031, respectively. During
the first nine months of 2005, a net increase in mortgage notes receivable used
$965,893. During the first nine months of 2004, a net reduction in mortgage
notes receivable provided $4,663,537.

Net cash provided by and used in financing activities during the nine months end
September 30, 2005 and 2004 was $1,860,343 and $6,324,160, respectively. During
the first nine months of 2005, borrowings provided cash of $2,599,483 while
dividends and treasury stock purchases reduced cash by $203,169 and $535,971,
respectively. During the first nine months of 2004, repayments of borrowings
used cash of $11,750,000, new borrowings provided $6,155,749, dividends reduced
cash by $756,811 and treasury stock sales increased cash by $26,902.

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 September 30, 2005 balance sheet of the lower of
cost or market.

                                       21
<PAGE>
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 United States
Prime Rate can affect the Trust's net interest income. The majority of the
Trust's liabilities are floating rate based on a spread over the daily Prime
Rate. As the Prime Rate increases or decreases, the Company's interest expense
will move in the same direction.

On account of the relatively short adjusted weighted average maturity of the
Trust's portfolio (29 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. As the level of variable rate mortgage financing
of the portfolio increases or the weighted average maturity of the portfolio
increases, the Trust may utilize a variety of financial instruments to limit the
effects of interest rate fluctuations.

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

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

The Trust manages credit risk through the underwriting process, limiting loans
at the time of funding to 75% of the collateral's appraised value, establishing
loss assumptions and carefully monitoring loan performance. Nevertheless, the
Trust assumes that a certain portion of its loans will default and adjusts the
allowance for loan losses based on that assumption. For purposes of
illustration, a doubling of the allowance for losses in the Trust's portfolio
would reduce third quarter 2005 GAAP income available to common shareholders by
$250,000.

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 (29 months).
CAFC's assets and liabilities are significantly shorter. The majority of CAFC's
assets is presold at origination for delivery within 60 days and is financed
with a repurchase facility that provides up to 60 days of financing.

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.

CAFC's assets are a fluctuating mix of fixed and variable rate mortgages. At
origination, the disposition of these loans is identified and their secondary
market sales pricing is usually predetermined. Given this relationship, CAFC's
interest rate sensitivity is neutral if secondary market purchase commitments
are honored.

                                       22
<PAGE>
                                     PART I
                                     ITEM 3.

                             CONTROLS AND PROCEDURES

(A) Evaluation of Disclosure Controls and Procedures. The Chief Executive
Officer, the President and Chief Operating Officer, and the Executive
Vice-President and Chief Financial Officer of the Trust have, based on their
evaluation of the Trust's disclosure controls and procedures within 90 days of
the filing date of this annual report, evaluated the effectiveness of such
controls and procedures. Based on such evaluations, they have concluded that the
Trust's disclosure controls and procedures have effectively operated to ensure
that all material information relating to the Trust and its operations and
financial condition has been made known to them by other officers and employees
within the Trust and its Manager on a timely basis.

(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

     15,100 common shares were purchased for treasury stock during the three
     month period ended September 30, 2005.

ITEM 3     DEFAULTS UPON SENIOR SECURITIES

     None.

ITEM 4     SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

     The annual proxy was submitted to a vote of security holders during the
     quarterly period ended June 30, 2005. The annual meeting was conducted on
     July 20, 2005. All proxy items were approved as follows:

       Proposal 1: Election of Class III Directors to a three year term.
              Donald R. Looper          FOR: 353,760          WITHHELD: 110,646
              Richard J. Wrensen        FOR: 456,997          WITHHELD:   7,409

       Proposal 2: Other business that may come before the Annual Meeting.
                                        FOR: 326,558          AGAINST:  112,850

ITEM 5     OTHER INFORMATION

     None.

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(5)

                                    23
<PAGE>
       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(4)
       23.5    Consent of Novogradac & Company LLP(4)
       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(6)
       24.8    Power of Attorney of Donald R. Looper(7)

(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.

(4)    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.

(5)    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.

(6)    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.

(7)    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.

       Form 8-K was filed on:

       o      July 25, 2005 due to the press release of July 18, 2005,
              announcing the omitting of its Preferred dividend.
       o      August 2, 2005 due to the press release of July 29, 2005,
              announcing new auditors.
       o      August 10, 2005 due to the press release of August 9, 2005,
              announcing the deferral decision on dividends.
       o      August 23, 2005 due to the press release of August 19, 2005,
              announcing the operating results for the second quarter.

                                       24
<PAGE>
                                   SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.


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


Dated: November 11, 2005

                            /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




                                       25
<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 September 30, 2005 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: November 11, 2005

                         /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


                                       26
<PAGE>
                                  CERTIFICATION
               OF FORM 10Q OF CAPITAL ALLIANCE INCOME TRUST LTD.,
                     A REAL ESTATE INVESTMENT TRUST FOR THE
                        PERIOD ENDING SEPTEMBER 30, 2005

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 November 11, 2005 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.


Date: November 11, 2005
                            /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


                                       27