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







                                  May 20, 1999



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

Re:      Capital Alliance Income Trust Ltd., A Real Estate Investment Trust
         SEC File No. 333-11625
         Our File No. 76021.0002

Dear Sir/Madam:

Pursuant  to  Sections  13 and  15(d) of the  Securities  Exchange  Act of 1934,
enclosed  for filing via EDGAR  please  find a Form 10-Q for the  quarter  ended
March 31, 1999. If you have any questions, please do not hesitate to call.

                                                     Very truly yours,

                                                     /s/ Richard J. Wrensen
                                                     ----------------------
                                                     Richard J. Wrensen
                                                     Chief Financial Officer

Enclosures

cc:      Stephen C. Ryan, Esq.



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



<PAGE>



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

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

                                    FORM 10-Q

(Mark One)

             (X)   Quarterly Report Under Section 13 or 15(d)
                   of the Securities Exchange Act of 1934 For
                    the quarterly period ended March 31, 1999

                        Commission File Number: 333-11625

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

                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

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

         50 California Street
         Suite 2020
         San Francisco, California                   94111                      
         -------------------------                   -----                      
      (Address of principal executive office)        (zip code)

                                 (415) 288-9575
--------------------------------------------------------------------------------
              (Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

                                    Yes    _X_        No ___.

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of the latest practicable date.

As of April 30, 1999, the aggregate market value of the  registrant's  shares of
Common  Stock,  $.01 par value,  held by non  affiliates of the  registrant  was
approximately  $5,938,960.  At that date  1,484,740  shares of common stock were
outstanding.  The shares are listed and publicly  traded on the  American  Stock
Exchange.

<PAGE>



                                     PART I
                                     ITEM 1.


                              FINANCIAL STATEMENTS














                                        2

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

                                                                               (Unaudited)       (Audited)
                                                                              March 31, 1999  December 31, 1998
                                                                              --------------  -----------------
<S>                                                                           <C>             <C>         
ASSETS
      Cash and cash equivalents ...........................................   $    477,896    $    570,710
      Restricted cash .....................................................        519,535         594,693
      Accounts receivable .................................................        178,435         193,241
      Due from affiliates .................................................        249,661         103,301
      Notes receivable:
           Note receivable to related party ...............................        247,500         225,000
           Warehouse lines of credit to related parties ...................      4,449,564       5,157,098
           Mortgage notes receivable ......................................     10,067,464       8,986,645
           Allowance for loan losses ......................................       (202,500)       (170,000)
                                                                              ------------    ------------
                Net receivable ............................................     14,562,028      14,198,743
      Real estate owned ...................................................        447,704         149,663
      Security deposits ...................................................         37,990          32,133
      Investments in affiliates ...........................................        674,121         831,936
      Origination costs ...................................................        120,217         120,217
      Organization costs (net of accumulated amortization of $13,056 at
              March 31, 1999 and $11,955 at December 31, 1998) ............          9,245          10,346
                                                                              ------------    ------------

      Total assets ........................................................   $ 17,276,832    $ 16,804,983
                                                                              ============    ============

LIABILITIES AND STOCKHOLDERS' EQUITY

      Liabilities
           Mortgage note holdbacks ........................................   $    519,935    $    594,693
           Other liabilities ..............................................        211,700         162,839
           Mortgage notes payable .........................................        745,950               0
                                                                              ------------    ------------
      Total liabilities ...................................................      1,477,585         757,532
                                                                              ------------    ------------

      Stockholders' Equity
            Preferred stock, $.01 par value (liquidation value $9.50 ......          6,413           6,413
                      per share); 675,000 shares authorized; 641,283 shares
                  issued and 631,757 outstanding at March 31, 1999 and
                      December 31, 1999 
            Additional paid in capital -preferred stock ...................      5,868,711       5,868,711
            Less: treasury stock, 9,526 shares at cost ....................        (86,944)        (86,944)

            Common stock, $.01 par value; 5,000,000 shares ................         14,847          14,847
                    authorized ; 1,484,740 shares issued and outstanding
                    at March 31, 1999 and December 31,1998
            Additional paid in capital - common stock .....................      9,996,220      10,244,424
                                                                              ------------    ------------

      Total stockholders' equity ..........................................     15,799,247      16,047,451
                                                                              ------------    ------------

      Total liabilities and stockholders' equity ..........................   $ 17,276,832    $ 16,804,983
                                                                              ============    ============
</TABLE>

                See accompanying notes to financial statements.

                                       3


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

                                                            Three Months Ended
                                                                 March 31,
                                                          1999            1998
                                                          ----            ----
<S>                                                 <C>             <C>        
REVENUES
    Interest income ............................    $   398,440     $   258,560
    Interest income from affiliates ............    $   118,444     $    61,467
    Investment income from affiliates ..........    $  (150,315)    $   (36,295)
    Other income ...............................          4,888           8,772
                                                    -----------     -----------
        Total revenues .........................        371,457         292,504
                                                    -----------     -----------

EXPENSES
    Loan servicing fees to related party .......         75,609          48,810
    Management fees to related party ...........         38,233          25,182
    Interest expense ...........................         39,950            --
    Provision for loan losses ..................         32,500            --
    Operating expenses of real estate owned ....          5,620           2,890
    Taxes ......................................          5,300          10,436
    General and administrative .................         30,854          26,052
                                                    -----------     -----------
          Total expenses .......................        228,066         113,370
                                                    -----------     -----------

NET INCOME .....................................    $   143,391     $   179,134
                                                    ===========     ===========



PREFERRED DIVIDENDS ............................    $   138,789     $   152,304


BASIC EARNINGS PER  COMMON SHARE ...............    $     0.003     $     0.039



DILUTED EARNINGS PER  COMMON SHARE .............    $     0.003     $     0.035



WEIGHTED AVERAGE COMMON SHARES
    OUTSTANDING - BASIC EARNINGS PER SHARE .....      1,484,740         687,949

WEIGHTED AVERAGE COMMON SHARES
    OUTSTANDING - DILUTED EARNINGS PER SHARE ...      1,484,740         756,744
</TABLE>


                See accompanying notes to financial statements.

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

                                                                       Three Months Ended
                                                                            March 31,
                                                                            ---------
                                                                      1999           1998
<S>                                                             <C>            <C>        
CASH FLOWS FROM OPERATING ACTIVITIES
      Net Income ............................................   $   143,391    $   179,134
      Adjustments to reconcile net income to net cash
        Amortization ........................................         1,101          1,101
        Gain (loss) on real estate owned ....................          --             --
        (Increase) decrease in  accounts receivable .........        14,806        (29,602)
        Provisions for loan loss ............................        32,500           --
        Increase in organization costs ......................          --             --
        Increase (decrease) in security deposits ............        (5,857)          --
        Increase (decrease) in due to affiliates ............      (146,360)       (74,124)
        Increase (decrease) in other liabilities ............        48,861         54,600
                                                                -----------    -----------
          Net cash provided by (used in) operating activities        88,442        131,109
                                                                -----------    -----------

CASH FLOWS FROM INVESTING ACTIVITIES
      (Increase) decrease in restricted cash ................        75,158       (171,515)
      Increase (decrease) in mortgage note holdbacks ........       (75,158)       171,515
      Increase (decrease) in origination costs ..............          --             --
      (Increase) decrease in warehouse lines of credit ......       707,534        262,258
      (Increase) in investments .............................       157,815         43,795
      Increase in related party note receivable .............       (22,500)      (225,000)
      Investments in mortgage notes receivable ..............    (3,408,469)    (3,191,883)
      Repayments of mortgage notes receivable ...............     2,043,576        713,842
      Net proceeds from sale of real estate owned ...........          --             --
      Capital costs of foreclosed property ..................       (13,967)          --
                                                                -----------    -----------
        Net cash provided by (used in) investing ............      (536,011)    (2,396,988)
                                                                -----------    -----------

CASH FLOWS FROM FINANCING ACTIVITIES
      Note payable to related party .........................          --          (72,148)
      Redemption of shares ..................................          --             --
      Proceeds from issuance of shares ......................          --        2,116,320
      Proceeds of mortgage notes payable ....................       745,950           --
      Organizational and offering costs .....................          --         (218,802)
      Preferred dividends paid ..............................      (138,789)      (152,304)
      Common dividends paid .................................      (252,406)       (30,492)
                                                                -----------    -----------
        Net cash provided by (used in) financing activities .       354,755      1,714,721
                                                                -----------    -----------

NET INCREASE (DECREASE) IN CASH .............................       (92,814)      (551,158)
CASH AT BEGINNING OF PERIOD .................................       570,710      1,748,485
                                                                -----------    -----------

CASH AT END OF PERIOD .......................................   $   477,896    $ 1,197,327
                                                                ===========    ===========

SUPPLEMENTAL CASHFLOW INFORMATION:
      Interest expense paid .................................   $    39,922           --
      Taxes paid ............................................   $       800           --
</TABLE>
                See accompanying notes to financial statements.

                                       5
<PAGE>

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

                          Notes to Financial Statements
               For the three months ended March 31, 1999 and 1998
                                   (Unaudited)


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

      Capital  Alliance Income Trust Ltd., A Real Estate  Investment  Trust (the
      "Trust"),  a Delaware  corporation,  primarily  invests in mortgage  loans
      secured  by real  estate.  The  Trust  was  formed  December  12,  1995 to
      facilitate  the  combination  of the  mortgage  investment  operations  of
      Capital  Alliance Income Trust I, a Delaware  business trust,  and Capital
      Alliance Income Trust II, a Delaware  business  trust.  CAIT I and CAIT II
      were  both  privately-held   mortgage  investment  trusts  which  invested
      primarily  in  loans  secured  by  deeds  of  trust  on  one-to-four  unit
      residential properties.  The Manager, Capital Alliance Advisors, Inc. (the
      "Manager") originates, services and sells the Trust's loans.

      Effective  February 12, 1997, the Trust  registered its common shares with
      the Securities and Exchange  Commission  pursuant to the Securities Act of
      1933,  as amended in  connection  with a"best  efforts"  offering of up to
      1,500,000  common  shares at $8.00 per share and  warrants  to purchase an
      additional 150,000 common shares at $5.60 per share. On September 30, 1998
      the offering closed and a total of 1,484,700 common shares were issued.



2.    Basis of presentation
      ---------------------

      The accompanying  financial  statements include the accounts of the Trust.
      The financial  information  presented has been prepared from the books and
      records without audit.  The  accompanying  financial  statements have been
      prepared  in  accordance  with the  instructions  to Form  10-Q and do not
      include all of the  information  and the  footnotes  required by generally
      accepted accounting principles for complete statements.  In the opinion of
      management,   all   adjustments,   consisting  only  of  normal  recurring
      adjustments,   necessary  for  a  fair   presentation  of  such  financial
      statements, have been included.

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

      These  financial  statements  should  be  read  in  conjunction  with  the
      financial  statements  and notes  thereto for the year ended  December 31,
      1998 filed pursuant to 15d-2 on Form 10-K with the Securities and Exchange
      Commission.

      The  unaudited  interim  financial  statements  for the three months ended
      March 31, 1998 and March 31, 1999  represent the the financial  statements
      of the Trust.

                                        6

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

                          Notes to Financial Statements
               For the three months ended March 31, 1999 and 1998
                                   (Unaudited)

3.    Summary of significant accounting policies
      ------------------------------------------

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

     Cash and cash  equivalents.  Cash and  cash  equivalents  include  cash and
     liquid  investments with an original  maturity of three months or less. The
     Trust  deposits  cash in  financial  institutions  insured  by the  Federal
     Deposit Insurance  Corporation.  At times, the Trust's account balances may
     exceed the insured limits.  Restricted cash represents  segregated cash and
     is to be disbursed  only to mortgage  loan  borrowers  upon  completion  of
     certain improvements to the secured property (see Note 4).

     Revenue  recognition.  Interest  income is recorded on the accrual basis of
     accounting in accordance  with the terms of the loans.  When the payment of
     principal or interest is 90 or more days past due,  management  reviews the
     likelihood  that the loan  will be  repaid.  For  these  delinquent  loans,
     management  continues to record interest income and establishes a loan loss
     reserve  as  necessary  to  protect  against  losses in the loan  portfolio
     including accrued interest.

     Concentration  of credit  risk.  The Trust holds  numerous  mortgage  notes
     receivable.  These  notes  are  secured  by deeds  of trust on  residential
     properties   located   primarily  in   California,   which   results  in  a
     concentration of credit risk. The value of the portfolio may be affected by
     changes in the  economy  or other  conditions  of the  geographic  area.  A
     portion of the portfolio is secured by second trust deeds on real estate.

     Loan loss reserve.  Management reviews its loan loss provision periodically
     and  the  Trust  maintains  an  allowance  for  losses  on  mortgage  notes
     receivable at an amount that  management  believes is sufficient to protect
     against  losses  in  the  loan  portfolio.   Accounts   receivable   deemed
     uncollectible  are  written  off or  reserved.  The Trust  does not  accrue
     interest  income on impaired loans (Note 5). As of March 31, 1998 and March
     31, 1999 the loan loss reserves were $0 and $202,500, respectively.

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

     On April 11,  1997 the  Trust  formed  its  non-qualified  REIT  subsidiary
     Capital  Alliance  Funding  Corporation  ("CAFC") to conduct  its  mortgage
     conduit  business.  The  Trust  owns  100% of the  outstanding  Series  "A"
     Preferred  stock  (2,000  shares  of  non-voting   stock)  in  CAFC,  which
     constitute a 99% economic  interest in CAFC. The Trust's  Manager owns 100%
     of the Common Shares (1,000 shares) of CAFC, which constitute a 1% economic
     interest and has 100% voting control. The Trust's Manager also manages CAFC
     and provides mortgage origination and sale and services for CAFC. The Trust
     accounts for its investment in CAFC under the equity method. 7
<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST

                          Notes to Financial Statements
               For the three months ended March 31, 1999 and 1998
                                   (Unaudited)

     Income  taxes.  The Trust  intends at all times to qualify as a real estate
     investment  trust ("REIT") for federal income tax purposes , under Sections
     856  through  860 of the  Internal  revenue  Code of 1986,  as amended  and
     applicable Treasury Regulations.  Therefore,  the Trust will not be subject
     to federal corporate income taxes, if the Trust distributes at least 95% of
     its taxable  income to its  shareholders.  To qualify as a REIT,  the trust
     must elect to be so treated  and must meet on a  continuing  basis  certain
     requirements relating to the Trusts organization, sources of income, nature
     of  assets,  and  distribution  of assets to  shareholders.  The Trust must
     maintain   certain  records  and  request  certain   information  from  its
     stockholders  designed  to  disclose  actual  ownership  of its  stock.  In
     addition  the Trust must satisfy  certain  gross  income  requirements  and
     certain asset tests at the close of each quarter of its taxable year.

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

     Based on the Trust's belief that it has operated in a manner so as to allow
     it to elect to be taxed as a REIT since inception, no provision for federal
     income taxes has been made in the financial statements.

     For the  three-month  period ended March 31, 1998,  the  distributions  per
     preferred  share are allocated 100% as ordinary income and the common share
     distribution is allocated 95% ordinary income and 5% as a return of capital
     for tax purposes.  For the period ended March 31, 1999,  the  distributions
     per preferred share are allocated 100% ordinary income and the common share
     distribution  is allocated 15% ordinary  income and a 85% return of capital
     for tax purposes.

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

     Origination costs.  Origination costs relating to mortgage notes receivable
     are deferred and  recognized as an adjustment to yield over the term of the
     notes.

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

     Deferred  offering  costs.  Deferred  offering  costs  relate  to the "best
     efforts" offering of common stock.  While the offering was underway,  these
     costs were offset pro-rata against the proceeds from the issuance of common
     stock and as a reduction of stockholder's equity.

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

                          Notes to Financial Statements
               For the three months ended March 31, 1999 and 1998
                                   (Unaudited)

      Real estate owned. Real estate owned results from foreclosure of loans and
      at time of foreclosure is recorded at the lower of carrying amount or fair
      value of the property minus  estimated  costs to sell. At this time senior
      debt to which  the asset is  subject  is  reported  as  mortgage  payable.
      Subsequent to  foreclosure,  the  foreclosed  asset value is  periodically
      reviewed and is adjusted to fair value.  No  depreciation  is taken on the
      real  estate  held for sale.  Income and  expenses  related to real estate
      owned are  recorded  as other  income,  interest  expense  and general and
      administrative expenses on the Statements of Operations.

      Reclassifications. Certain 1998 amounts have been  reclassified to conform
      with 1999 classifications.Such reclassifications had no effect on reported
      net income.


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

      Pursuant to mortgage loan agreements  between the Trust and certain of its
      borrowers,  a  portion  of the  loan  proceeds  are  held by the  Trust in
      segregated accounts to be disbursed only to such borrowers upon completion
      of certain improvements on the secured property.  As of March 31, 1998 and
      March 31, 1999,  mortgage note holdbacks from the consummation of mortgage
      loans made amounted to $ 594,693 and $519,535 respectively.


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

      Mortgage  notes   receivable   represent  home  equity  loans  secured  by
      residential real estate. At their original  origination,  all loans have a
      combined  loan-to-value of not more than 75% of the underlying collateral.
      The Trust is subject to the risks  inherent in finance  lending  including
      the risk of borrower default and bankruptcy.

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


6.    Accounts receivable
      -------------------

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


7.    Mortgage notes payable
      ----------------------

      As of March 31, 1998 the Trust held no mortgage notes payable. As of March
      31, 1999 the Trust,  through a warehouse line of credit issued to CAFC has
      borrowed $745,950 to finance a portion of its mortgage notes receivable.

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

                          Notes to Financial Statements
               For the three months ended March 31, 1999 and 1998
                                   (Unaudited)

8.    Related party transactions
      --------------------------

     The Manager, which is owned by several of the Trustees and their affiliate,
     contracted with the Trust to provide administration services and receives a
     fee for these  services  from the Trust.  The  Manager is also  entitled to
     reimbursement  for  clerical and  administrative  services at cost based on
     relative  utilization of facilities  and  personnel.  The Manager bears all
     expenses of services for which it is separately compensated.

     The Manager  receives a management  fee equal to  one-twelfth  (1/12) of 1%
     annually of the book value of mortgages,  mortgage-related  investments and
     real property ("Gross Mortgage Asset") of the Trust plus one-twelfth (1/12)
     of one half percent (1/2%) of the book value of the non-mortgage  assets of
     the Trust  computed at the end of each month.  The Trust paid the Manager a
     management  fee of $25,182 and $38,233 for the three months ended March 31,
     1998 and March 31, 1999, respectively.

     The Manager also  receives a loan  origination  and  servicing fee equal to
     one-twelfth (1/12) of 2% annually of the Gross Mortgage Assets of the trust
     computed  at the end of each  month.  The  Trust  paid the  Manager  a loan
     origination  and  servicing fee of $48,810 and $75,609 for the three months
     ended March 31, 1998 and March 31, 1999, respectively.

     The Manager also receives  incentive  compensation for each fiscal quarter,
     equal to 25% of the net  income of the  Trust in  excess  of an  annualized
     return on equity for such quarter equal to the ten year U.S.  Treasury Rate
     plus 2% provided that the payment of such incentive  compensation  does not
     reduce the  Trust's  annualized  return on equity for such  quarter to less
     than the ten year U.S.  Treasury Rate plus 2% after the preferred  dividend
     has been  paid.  As of March  31,  1998 and  March  31,  1999 no  incentive
     compensation was paid.

     As described  in Note 3, the Trust holds an  investment  in Sierra  Capital
     Funding  and  receives a 15%  guaranteed  return per annum.  For each three
     months ended March 31, 1998,  and March 31, 1999 the Trust earned  interest
     of $7,500 from the investment.

     As  described  in Note 3, the Trust has a  non-qualified  REIT  subsidiary,
     Capital Alliance Funding Corporation.  For the three months ended March 31,
     1998 and March  31,  1999 the Trust was  allocated  losses of  $43,795  and
     157,815, respectively.  $25,628 of the subsidiaries 1998 loss resulted from
     a loss  on  the  disposition  of  real  estate  owned.  The  1999  loss  is
     attributable   to  the  expansion  of  the   subsidiaries   wholesale  loan
     origination capacity.

     On  February  1, 1998 , the Trust  advanced  $225,000  to Equity  1-2-3,  a
     division of Sierra Capital Funding LLC, a related party, and recorded it as
     a related party note  receivable.  The note bears interest at 15% per annum
     and interest is payable  quarterly.  As of March 31, 1998 $5,625 was earned
     on this note. On February 10, 1999 the Trust advanced an additional $22,500
     to Equity  1-2-3.  For the period  ending  March 31, 1999 the Trust has not
     recognized any interest from this note.

     As of  December  31,  1997 , the Trust had a note  payable  of $72,148 to a
     related  party that accrued  interest at 11.5% per annum.  The note and the
     accrued interest was repaid prior to March 31, 1998.

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

                          Notes to Financial Statements
               For the three months ended March 31, 1999 and 1998
                                   (Unaudited)

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

     The Preferred Shares are entitled to a distribution preference in an amount
     equal to an annualized return on the Net Capital  Contribution of Preferred
     Shares at each dividend  record date during such year (or, if the Directors
     do not set a record  date,  as of the first day of the month)  equal to the
     lesser of 10.25% or 150 basis points over the Prime Rate  (determined  on a
     not less than quarterly basis).

     After  declaration of dividends for a given quarter to the Preferred Shares
     in the amount of the distribution preference,  no further distributions may
     be  declared  on the  Preferred  Shares for the  quarter  until the current
     Distributions  declared on each Common  Share for that  quarter  equals the
     distribution  preference  for each  Preferred  Share for such quarter.  Any
     additional  distributions  generally will be allocated such that the amount
     of  distributions  per share to the  holders  of the  Preferred  Shares and
     Common Shares for the quarter are equal. The distribution preference of the
     Preferred Shares is not cumulative.

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

     The  Preferred  Shares,  at the  option  of the  Board  of  Directors,  are
     redeemable by a  Shareholder  annually on June 30 for  redemption  requests
     received by May 15 of such year.  The Board of Directors  may in their sole
     discretion  deny,  delay,  postpone or consent to any or all  requests  for
     redemption.  The  redemption  amount  to be  paid  for  redemption  of such
     Preferred  Shares is the  adjusted  net  capital  contribution  plus unpaid
     accrued dividends,  divided by the aggregate net capital contributions plus
     accrued  but  unpaid   dividends   attributable  to  all  Preferred  Shares
     outstanding, multiplied by the net asset value of the Trust attributable to
     the  Preferred  Shares  which shall be that  percentage  of the Trust's net
     asset value that the aggregate  adjusted net capital  contributions  of all
     Preferred  Shares bears to the adjusted  net capital  contributions  of all
     Shares  outstanding.  A  liquidation  charge  is  charged  by the  Trust in
     connection  with each  redemption as follows:  1% of  redemption  amount in
     1998, and none thereafter.

     The trust has the power to redeem or prohibit  the transfer of a sufficient
     number of common and/or Preferred shares or the exercise of warrants and to
     prohibit  the  transfer of shares to persons that would result in violation
     of the Trust's share holding requirements.  In addition, the Bylaws provide
     that no shareholder may own more than 9.8% of the total outstanding  shares
     after the conclusion of the initial public offering of Common Shares.

     One  Shareholder  Warrant was issued for every 10 Common Shares  purchased.
     Each shareholder  Warrant entitles the holder to purchase one Common Share.
     The  exercise  price foe each  Shareholder  warrant is $5.60,  which may be
     exercised during the 25th through 48th month after April 28, 1997. In order
     to protect the Warrant holders against dilution,  the exercise price of the
     Warrants  and the number of which may be  purchased  upon  exercise  of the
     Warrants  will  be  adjusted  should  certain  events  occur  (i.e.   stock
     dividends,  split-ups,  combinations, and reclassifications).  Provision is
     also  made  to  protect  against   dilution  in  the  event  of  a  merger,
     consolidation,  or disposition of all or  substantially  all of the Trust's
     assets.  Warrant  holders do not have the rights of a shareholder  and they
     are not entitled to participate in a distribution of the trust's

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

                          Notes to Financial Statements
               For the three months ended March 31, 1999 and 1998
                                   (Unaudited)

     assets in a liquidation,  dissolution,  or winding up of the trust,  unless
     the  Warrants  have  been  exercised.  The  Trust  may  refuse to allow the
     exercise of a warrant if the effect of such exercise  would  disqualify the
     Trust as a REIT under the Internal Revenue Code.

     Under  the 1998  Incentive  Stock  Option  Plan,  adopted  by the  board of
     directors and approved by the  stockholders,  options for the purchase of a
     total  of  150,000  common  shares  of the  Trust  were  granted  effective
     September 30, 1998. 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 six (6) months after the date
     of the grant.  The initial options for the purchase of 75,000 common shares
     can be  exercised  at $8.00 per share.  The options for the purchase of the
     remaining  75,000 of common shares can be exercised at the closing price of
     the Trust's  common shares on the American Stock Exchange on April 1, 1999,
     which was $4.50 per common share..

     During 1998 the Trust's net purchase of treasury preferred stock was 9,526.
     The purchases were recorded at cost and as a reduction to preferred  shares
     and additional paid in capital from preferred  shares. No additional common
     or preferred shares were purchased for the treasury as of March 31, 1999.


10.  Earnings per share
     ------------------

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

                                                    March 31, 1998  March 31, 1999
                                                       ----------     ----------
<S>                                                    <C>            <C>       
      Numerator: 
            Net income ...........................     $  179,134     $  143,391
            Less: Preferred Dividend .............     $  152,304     $  138,789
                                                       ----------     ----------

Numerator for basic and diluted
earnings per share ...............................     $   26,830     $    4,602
                                                       ----------     ----------

Denominator:
            Basic weighted average shares ........        687,949      1,484,700
            Effect of dilutive warrants ..........         68,795              0
                                                       ----------     ----------
            Diluted weighted average shares ......        756,744      1,484,700
                                                       ----------     ----------

Basic earnings per common share ..................     $    0.039     $    0.003
                                                       ----------     ----------
Diluted earnings per common share ................     $    0.035     $    0.003
                                                       ----------     ----------
</TABLE>



                                       12
<PAGE>
                                     PART I
                                     ITEM 2.


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
















                                       13

<PAGE>
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS


     The  financial  statements  of Capital  Alliance  Income Trust Ltd., A Real
Estate  Investment  Trust (the  "Trust")  dated  herein were  prepared  from the
unaudited books and ledgers of the Trust.

General

      Recent  Trends.  The Trust  invests in  non-conforming  mortgage  loans on
one-to-four unit residential  properties because management  believes that there
is a large demand for non-conforming mortgage loans on these kinds of properties
which produce higher yields without comparably higher credit risks when compared
with conforming  mortgage  loans.  Management  invests  primarily in A-, B/C (or
less) credit rated home equity loans  secured by deeds of trust.  In general,  B
and C credit  rated home equity  loans are made to  borrowers  with lower credit
ratings than  borrowers of higher  credit  quality,  such as A credit rated home
equity  loans.  Home  equity  loans  rated A-, B/C (or less) tend to have higher
rates of loss and  delinquency,  but higher rates of interest than  borrowers of
higher credit quality.

      Management   believes   there  is  increased   demand  for   high-yielding
non-conforming  mortgage loans caused by a demand by investors for higher yields
due to low  interest  rates  over the  past  few  years  and  securitization  of
high-yielding non-conforming mortgage loans by the investment banking industry.

      Loan Origination and Loan Servicing. Mortgage loan origination consists of
establishing  a  relationship  with a  borrower  or his  broker,  obtaining  and
reviewing documentation concerning the credit rating and net worth of borrowers,
inspecting and appraising  properties that are proposed as the subject of a home
equity  loan,  processing  such  information  and  underwriting  and funding the
mortgage  loan.  Mortgage loan  servicing  consists of collecting  payments from
borrowers,   accounting  for  interest  payments,  holding  escrow  funds  until
fulfillment  of mortgage loan  requirements,  contacting  delinquent  borrowers,
foreclosing  in  the  event  of  unremedied   defaults  and   performing   other
administrative  duties.  Mortgage  loan  origination  and  loan  servicing  were
provided to the Trust by CAAI, its Manager.

      Commitments  and  Contingencies.  As of March 31,  1999,  the Trust's loan
portfolio  included total loans of $10,067,464 of which $1,472,203  representing
14.6% of the loan  portfolio  were  delinquent  over  sixty  days.  There were 5
delinquent  loans which were in the process of foreclosure at March 31, 1999. In
assessing the  collectibility  of these  delinquent  mortgage loans,  management
estimates a net gain will be realized upon sale of the properties securing these
loans, if it is necessary to foreclose upon the mortgage loans due to the Trust.
Management's  estimate is based on a discounted sales price of the property less
the sum of  pre-existing  liens,  costs of sale, the face amount of the mortgage
loan  and  accrued  interest   receivable.   The  Trust  generally  issues  loan
commitments only on a conditional  basis and generally funds such loans promptly
upon  removal  of any  conditions.  Accordingly,  the  Trust  did not  have  any
commitments to fund loans as of March 31, 1999 and March 31, 1998.

Results of Operations

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

      Three months ended March 31, 1999 and 1998. Revenues for the first quarter
increased  to  $371,457  as  compared  to  $292,504  for the same  period in the
previous  year.  The  increase in revenue in the three month  period in 1999 was
primarily due to interest  income  received from borrowers and affiliates due to
larger  loan  portfolio  than in the same period of  previous  year.  Investment
income during 1999 also declined  $114,020 due to the expansion costs of Capital
Alliance Funding Corporation.

                                       14
<PAGE>
      Expenses for the first  quarter 1999  increased to $228,066 as compared to
$113,370  for the same period in the  previous  year.  The increase in the three
months of 1999  compared  to 1998 is due to  $39,850 of higher  loan  servicing,
origination and management fees resulting from the increase in the Trust's asset
value,  interest  expenses of $39,950 to finance a larger loan  portfolio  and a
$32,500 reserve for loan losses.

Inflation

      The  financial  statements  of the  Trust,  prepared  in  accordance  with
generally accepted accounting principles,  report the Trust's financial position
and operating  results in terms of historical  dollars and does not consider the
impact of inflation.  Inflation affects the Trust's operations primarily through
its effect on interest  rates,  since interest rates  normally  increase  during
period of high  inflation and decrease  during  periods of low  inflation.  When
interest rates increase,  the demand for mortgage loans and a borrower's ability
to qualify for mortgage financing may be adversely affected.

 Liquidity and Capital Resources

      The liquidity of the Trust will be based upon the need to fund investments
in mortgage  loans.  The major  portion of the proceeds  from issuance of common
stock in the Trust,  which was  completed on September  30, 1998 was invested in
mortgage  loans.  The  Trust's  liquidity  requirements  will  also be funded by
periodical  payoffs of existing loans which are generally short term in duration
and by the sale of foreclosed  properties.  Restrictions  on cash  attributed to
holdbacks do not significantly impact the Trust's liquidity.

      Net cash  provided by operating  activities  during the three months ended
March 31, 1999 and 1998 was $88,442 and $131,109 respectively.

      Net cash provided by (used in) investing  activities  for the three months
ended March 31, 1999 and 1998 was $(536,011) and $(2,396,988), respectively. The
large increase in 1999 compared to the prior period is due to increased mortgage
note repayments resulting from a larger portfolio.

      Net cash  provided by financing  activities  during the three months ended
March 31, 1999 and 1998 was  $354,755  and  $1,714,721,  respectively.  The 1999
results are  primarily  from the proceeds of mortgage  notes  payable . The 1998
results are primarily from the proceeds of issuing additional common shares.

       As of March 10, 1999,  CAFC  entered  into an agreement  for a $4,000,000
warehouse line of credit which is guaranteed by the Trust. CAFC also maintains a
$3,000,000  warehouse  line  of  credit  from  another  lender,  which  is  also
guaranteed by the Trust.  The Trust has also extended a warehouse line of credit
to CAFC.  Management  believes that cash flow from  operations,  the proceeds of
loan repayments plus the  establishment of the warehouse lines of credit for the
Mortgage  Conduit Business will be sufficient to meet the liquidity needs of the
Trust's businesses for the next twelve months.

Year 2000

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

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

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

                                       15
<PAGE>


                                     PART II

                                OTHER INFORMATION


ITEM 1              LEGAL PROCEEDINGS

                    The trust is not involved in any legal  proceedings  at this
                    time.

ITEM 2              CHANGES IN SECURITIES

                    There have been no changes in the outstanding  securities of
                    the Trust during the quarterly period ending March 31, 1999.
                    The  Trust's   Certificate  of  Incorporation  was  amended,
                    effective July 31, 1997, to increase the Trust's  authorized
                    capital to 5,675,000  shares,  5,000,000 of which are Common
                    Shares,  $.01 par value, and 675,000 of which are Series "A"
                    Preferred Shares, $.01 par value

ITEM 3              DEFAULTS UPON SENIOR SECURITIES

                    Not applicable.

ITEM 4              SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

                    Not applicable

ITEM 5              OTHER INFORMATION

                    Not applicable.

ITEM 6              REPORTS ON FORM 8-K

                    On  March  18,  1999 the  Registrant  filed  Form 8-K  dated
                    February  10, 1999 and March 1, 1999 which  included two (2)
                    press releases which are incorporated herein by reference.

                                       16
<PAGE>
       Pursuant to the requirements of the Securities  Exchange Act of 1934, the
Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.


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



Dated:   May 20, 1999               By:     /s/ Richard J. Wrensen    
                                            -------------------------------
                                                Richard J. Wrensen, 
                                                Chief Financial Officer







                                       17